FINE ELITE GROUP LTD v. CHENG WAI TAO

HCA1269/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1269 OF 2008

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J U D G M E N T

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Introduction

1. The plaintiff applies, by a summons dated 3 September 2009 under Order 86, rule 1 of the Rules of the High Court, for an order for specific performance of an agreement known as the Hero Elegant Agreement dated 16 September 2006 to which the plaintiff and defendant were both parties.

2. As required by Order 86, rule 2(2), minutes of order setting out the judgment sought by the plaintiff are attached to the summons.

3. For his part, the defendant maintains that the Hero Elegant Agreement was induced by and/or tainted with misrepresentations and has since been rescinded, alternatively that the agreement has been brought to an end by the defendant’s acceptance of repudiatory breaches of it by the plaintiff.

Background facts

4. The background to this action is that the defendant together with various individuals including Poon Ka Man Jason (“Jason Poon”), Poon Wai Daisy (“Daisy Poon”) and a Mr Shigemitsu Katsuaki, were shareholders together in the Ajisen Group which operated Japanese ramen restaurants in Hong Kong.

5. According to the plaintiff, in early 2004 the shareholders of the Ajisen Group agreed to develop Japanese-style chain restaurants using corporate vehicles in which all of them would be interested as shareholders.  The defendant maintains, on the other hand, that it was his decision in early 2004 to establish and operate a sushi business.

6. On 14 April 2004, a company called Smart Wave Limited was incorporated in Hong Kong with the defendant holding one share and being its sole director.

7. On 5 May 2004 a provisional tenancy agreement was signed by the defendant on behalf of Smart Wave for premises at G/F, 14 Granville Road, Tsim Sha Tsui.  As recorded in the provisional tenancy agreement, Smart Wave was to operate “either an Ajisen Ramen outlet or a Japanese sushi shop or a Japanese-style pub”.

8. On 10 August 2004, Smart Wave commenced a sushi restaurant at the Granville Road premises.  The restaurant was known in English as “Itamae Sushi”, and in Chinese as (板前壽司), these being service marks designed for the purposes of the business.

9. On 30 November 2004, there was an allotment of 9,999 shares in Smart Wave, of which 1,000 shares were allotted to Jason Poon, 2,400 shares to Daisy Poon, 2,299 shares to the defendant and 4,300 shares to six other persons.

10. The plaintiff alleges that from February 2005 onwards, the defendant caused Smart Wave to advance interest-free loans to companies solely owned by him for the purposes of opening further Itamae Sushi restaurants.  Whether that is true or not, it is a fact that on 30 March 2005 a company called Joyful Gain Limited, which is solely owned by the defendant, commenced a second Itamae Sushi restaurant business at G/F, Excelsior Plaza, Causeway Bay, and on 25 February 2006 a company called Perfect Plan Limited, also solely owned by the defendant, commenced a third Itamae Sushi restaurant business at Soy Street, Mongkok.

11. The plaintiff was incorporated on 11 May 2006.

12. In June 2006, a company called Well Keen Limited, also solely owned by the defendant, began operating a business of a food processing workshop for the Itamae Sushi restaurants.

13. According to the plaintiff, sometime in the mid-2006, Jason Poon and Daisy Poon discovered the interest-free loans allegedly caused by the defendant to be made by Smart Wave to Joyful Gain and Perfect Plan and the fact that the second and third Itamae Sushi restaurants were being operated by companies in which they had no shares.  For his part, the defendant maintains that in July or August 2006 he raised with Mr Eugene Wong, as the representative of Jason Poon, the fact that the service marks for Itamae Sushi were solely owned by and belonged to him and should only be registered in his sole name.  The defendant maintains that this was a condition precedent of the agreement known as the Hero Elegant Agreement entered into between the parties the following month (see below).

14. On 9 August 2006, the plaintiff applied to register the service marks of “Itamae Sushi (板前壽司)” with the Trade Mark Registry.

15. Whatever the position in respect of the matters referred to in paragraph 13 above, what is incontrovertible is that on 16 September 2006 a number of documents were executed :

(1) the plaintiff, the defendant and a company said to be incorporated in Hong Kong called Hero Elegant Limited (“Hero Elegant”) entered into an agreement entitled “Shareholders’ Agreement relating to Hero Elegant Limited” (“the Hero Elegant Agreement”);

(2) Daisy Poon, the defendant, Mr Shigemitsu, a company incorporated in Hong Kong called Favor Will Limited and others entered into an agreement entitled “Shareholders’ Agreement relating to Favor Will Limited” (“the Favor Will Agreement”); and

(3) the defendant, Jason Poon, Daisy Poon and Mr Shigemitsu signed a document entitled “Ajisen Group — Memorandum of Reorganisation”.

The Hero Elegant Agreement

16. The Hero Elegant Agreement was signed by the defendant, on his own behalf and on behalf of Hero Elegant, and by Jason Poon on behalf of the plaintiff.

17. By this agreement it was agreed that the group of Hero Elegant and its subsidiaries should be principally engaged in the business of establishing, managing and operating Japanese-style chain restaurants and related businesses using the Service Marks (clause 2.1).  The term “Service Marks” was defined in the Hero Elegant Agreement as “the service marks bearing the name of ‘ITAMAE SUSHI (板前壽司)’ used in the course of or associated with the Business and currently applied for registration in the name of Party A, as more particularly set out in the Schedule hereto”.

18. It was also agreed that, as at 16 September 2006, the defendant and the plaintiff were the respective beneficial owners of 69% and 31% of the shares in Hero Elegant and that the shareholdings should at all times be in this proportion (clause 3.1).

19. The defendant undertook to the plaintiff and Hero Elegant that he would not use the name or trading style of any group company or any trademarks or logos or device similar in appearance to the Itamae Sushi service marks or any intellectual property of any group company in the PRC (including Hong Kong and Macau) or Asia or any other part of the world save for the purpose of the Itamae Sushi business of the group (clause 14.2).

20. The defendant agreed to provide a summary of financial statements of the group on a quarterly basis (clause 14.3).

21. The defendant granted to Hero Elegant and each of the group companies, whether existing at the date of the agreement or subsequently, an exclusive license to use the service marks worldwide during the continuance of the agreement and so long as the plaintiff remained a shareholder (clause 14.4).

22. The plaintiff and defendant agreed and undertook to each other that all chain-restaurants established or to be established to conduct the Itamae Sushi business should be owned and operated by a group company and that Hero Elegant should be the holding company of all such group companies owning and operating the Itamae Sushi business (clause 14.5).

23. It was provided that the agreement should continue in full force and effect until Hero Elegant should be wound up or otherwise cease to exist as a separate corporate existence or unless terminated by reason of all the shares being held beneficially by one shareholder or, in relation to any one shareholder, by that shareholder ceasing to be a shareholder (clause 16.1).

24. The agreement contained an entire agreement clause (clause 24.1) in the following terms :

“This Agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with herein and supersedes any previous agreements, arrangements, statements or transactions between the parties hereto in relation to the matters hereof.”

The Favor Will Agreement

25. Favor Will was the ultimate holding company of a group of companies carrying on a business known in English as “Ajisen Ramen” and in Chinese as味千拉麵.

26. By the Favor Will Agreement, the parties agreed to set out their respective rights and obligations with respect to the Ajisen Ramen business.

27. There is no dispute that the parties performed their obligations under this agreement.

The Ajisen Group — Memorandum of Reorganisation

28. The purpose of the Memorandum of Reorganisation was to set out the procedures for the restructuring of the Ajisen Group for the purpose of listing the shares of its proposed holding company, Ajisen (China) Holdings Limited on the Hong Kong Stock Exchange.

29. One of the requirements of the restructuring was that Daisy Poon and Jason Poon should dispose of their shares in Smart Wave to independent third parties.  Another was that Mr Shigemitsu should dispose of his shares in Smart Wave to the defendant.

30. Pursuant to this reorganisation, Daisy Poon and Jason Poon executed transfers in respect of their 34% shareholding in Smart Wave to the plaintiff.  However, Smart Wave, through its board of directors, which consists solely of the defendant, has not registered the transfer and, as a result, there is pending litigation in respect of this.

31. At the time of the transfer to the plaintiff, the plaintiff was beneficially owned by Jason Poon.  However, Jason Poon sold his beneficial interest in the plaintiff on 7 March 2007 to a company called Got’a Place Holdings Limited, a company owned by Mr Andrew Lee Tak Lun.

32. For Mr Shigemitsu’s part, he executed a transfer in respect of his 15% shareholding in Smart Wave to the defendant.

Events subsequent to the Hero Well Agreement

33. On 18 September 2006, two days after the execution of the Hero Elegant Agreement, the defendant wrote to Daisy Poon on behalf of Smart Wave informing her that the shareholders of the company were requested to inject a total of HK$4 million and requesting that she contribute HK$960,000 in respect of her 24% shareholding in the company. 

34. On 3 October 2006, a letter in Chinese was written by Jason Poon addressed to Smart Wave and marked for the attention of the defendant.  In that letter Jason Poon referred to his 34% shareholding in Smart Wave and paid the balance of his contribution towards the HK$4 million capital required.  He also confirmed that the plan for the development of the Itamae Sushi business was to expand its business operations by way of chain restaurants, that the chain of restaurants was to be placed under a holding company and that the percentage of his shareholding in the holding company would be 31%.  Finally, he confirmed that when appropriate, Smart Wave would also be placed under the holding company.  At the foot of the letter there is what appears to be the signature of the defendant on behalf of Smart Wave acknowledging its contents.  The defendant disputes the authenticity of this document.

35. On 16 October 2006, a company called Regal Well Limited, which is solely owned by the defendant, commenced a fourth Itamae Sushi restaurant business at Metro City, Tseung Kwan O.

36. On 26 October 2006, the defendant applied register the service marks “Itamae Sushi (板前壽司)” with the Trade Mark Registry.

37. On 20 November 2006, a company called Charm Gold Limited, which is solely owned by the defendant, commenced a fifth Itamae Sushi restaurant business at Gala Place, 56 Dundas Street, Mongkok.

38. According to the defendant, on 27 November 2006, he discovered that the plaintiff had already filed a prior application for registration, on 9 August 2006, of the service marks “Itamae Sushi (板前壽司)” with the Trade Mark Registry.  It is his case that he confronted Jason Poon about this after his discovery. 

39. The defendant asserts that in around December 2006 the disputes concerning the plaintiff’s application to register the Itamae Sushi service marks culminated in a confrontation between him and Jason Poon, at which Mr Gary Leung Sai Ming, Mr Eugene Wong and Mr Francis Chan were also present.  The defendant says that, notwithstanding his demands to Jason Poon that the plaintiff immediately withdraw the application for registration of the service marks, Jason Poon refused to do so and maintained that the plaintiff would contest the defendant’s attempts to register the service marks under his name.

40. As the defendant puts it in paragraph 34 of his affirmation in opposition to the plaintiff’s application :

“Therefore, at that occasion I called off the Hero Elegant Agreement and told Jason Poon on behalf of the Plaintiff that since he refuses to rectify the breaches I will treat myself as relieved from the Hero Elegant Agreement.  In addition to Mr. Leung Sai Ming also known as Gary Leung, Mr. Eugene Wong, Mr. Francis Chan, Miss Daisy Poon and Mr. Shigemitsu Katsuaki also heard me say so.  I am advised and verily believe that the Hero Elegant Agreement was thereby rescinded or alternatively terminated.”

41. In around late December 2006, a company called Wise Master Limited, which is solely owned by the defendant, commenced a sixth Itamae Sushi restaurant business at Festival Walk, 80 Tat Chee Avenue, Kowloon Tong.

42. On 19 January 2007, the plaintiff assigned to Jason Poon the trademark applications it had made in respect of the Itamae Sushi service marks.

43. Since about May 2007, the defendant has caused companies owned by him to open other Japanese-style sushi restaurants under the English name of Itacho Sushi and the Chinese name of (板長壽司) :

(1) In July 2007, a company called Ocean Profit Enterprises Limited, commenced the first Itacho Sushi restaurant business at Amoy Plaza, Kowloon Bay.

(2) In November 2007, a company called Star Wave Trading Limited commenced a second Itacho Sushi restaurant business at Ashley Nine, Tsim Sha Tsui.

(3) In about January 2008, a company called Bonway Limited commenced a third Itacho Sushi restaurant business at 318 Hennessy Road, Wanchai.

(4) On or about 10 March 2008, a company called Sander Limited commenced a fourth Itacho Sushi restaurant business at Excelsior Plaza, Causeway Bay.

(5) On or about 8 May 2008, a company called Wise Faith Investments Limited commenced the second Itacho Sushi restaurant business at Millennium City 5, Kwun Tong.

44. On 28 May 2007, Jason Poon executed a declaration of trust in favour of the plaintiff in respect of the pending Itamae Sushi service marks trademark applications.

45. In September 2007, a company called Pacific Giant Limited, which is solely owned by the defendant, commenced a seventh Itamae Sushi restaurant business at Luk Yeung Galleria, Tsuen Wan.

46. In March 2008, a company called Faithful Gain Limited, which is solely owned by the defendant, commenced an eighth Itamae Sushi restaurant business at Maritime Square, Tsing Yi.

47. In June 2008, the plaintiff’s then solicitors discovered that the defendant had failed to incorporate Hero Elegant Limited either in the BVI or in Hong Kong.

48. On 9 July 2008, the writ in this action was issued.  The Amended Statement of Claim was filed and served on 14 July 2009 and the Amended Defence filed and served on 11 August 2009. 

49. On 26 August 2009, Jason Poon offered, in an open letter from his solicitors to solicitors instructed by the defendant in respect of the trademark applications, to withdraw his pending trademark applications in respect of the Itamae Sushi service marks on condition that the defendant undertake to procure that the trademarks be assigned to and used solely for the benefit of the holding company under the Hero Elegant Agreement and not for the defendant’s own benefit.

50. On 3 September 2009, the Amended Reply was filed and served.  On the same date, the summons under Order 86, now before me, was issued.

The applicable principles

51. There was no dispute between the parties as to the applicable principles to be applied on an application under Order 86.  These were agreed to be those stated by Deputy Judge To (as he then was) in Super Town Investments Ltd v. Ives Developments Ltd, unrep., HCA86/2006, 22 May 2007, at paras.5 and 6 :

“5.   While the scope of application of Order 86 and Order 14 of the RHC are different, the legal principles applicable to an application for summary judgment under both Orders are the same.  These principles are well-established.  The cardinal principle is that a defendant ought not to be driven from the judgment seat if he has an arguable defence.  Thus, summary judgment should only be given where it is a clear and obvious case and ought therefore not to be tried: see Hong Kong Civil 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] 3 HKLRD 373.

6.    A concise statement of the standard approach in an 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 Ocean Joy Investments Ltd [2004] 1 HKC 438.  The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law.  In determining the first question, the court should not embark on a mini trial of the 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 assess if a defence will succeed at trial.  The court should not rule out a defence simply because it thinks the defence would not be believed by the trial judge because of some inherent weaknesses, save where what the defendant says is practical moonshine.  Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law: see Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 and Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106.”

52. In short, the court has to determine two questions, namely whether what the defendant says is believable and, secondly, if it is, whether what the defendant says amounts to an arguable defence in law.

53. As to the first question, the test is whether the defendant’s assertions are believable, not whether they are to be believed: Re Safe Rich Industries Ltd, unreported, CACV81/1994, 3 November 1994, citing Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 at 158G-H.

Summary of the Plaintiff’s claim

54. The plaintiff’s claim as pleaded in the Amended Statement of Claim is based on alleged breaches by the defendant of the Hero Elegant Agreement and the agreement contained in or evidenced by the letter in Chinese dated 3 October 2006.  Since the defendant disputes the authenticity of the latter document, the plaintiff was content to rest its claim on the Hero Elegant Agreement.  This concession is of no significance, in my view, as the content of the 3 October 2006 letter does not appear to add to the defendant’s contractual obligations under the Hero Elegant Agreement.

55. The plaintiff contends that the defendant has acted in breach of the Hero Elegant Agreement in three respects, namely :

(1) in failing to incorporate Hero Elegant or to put in place any holding company in which the plaintiff has a 31% shareholding;

(2) in failing to transfer the shares of the various companies operating the eight Itamae Sushi restaurants to a holding company and to allot 31% of the issued shares in the holding company to the plaintiff; and

(3) in establishing a chain of restaurants called the “Itacho Sushi” (板長壽司) restaurants, which the plaintiff contends is deceptively similar to Itamae Sushi, in order to divert business from or to compete with the Itamae Sushi restaurants.

Summary of the Defendant’s case

56. The defendant’s case is that :

(1) the plaintiff and/or Jason Poon made representations to the defendant as to the pre-contractual state of affairs, namely that, to the knowledge of the plaintiff and Jason Poon, nobody other than the defendant was entitled to registration of the Itamae Sushi service marks nor had anybody in fact purported to make falsely competing registrations or claims (the misrepresentation defence); and

(2) there is an implied term of the Hero Elegant Agreement to the effect that the plaintiff, whether by itself or through Jason Poon, would assist and support the defendant’s registration of the Itamae Sushi service marks or at least would not obstruct the same or put up competing registrations or claims (the repudiatory breach defence).

57. The misrepresentation defence is put on a number of bases.  It is primarily based on the combined effect of various provisions in the Hero Elegant Agreement.  It is also pleaded as being based on an alleged agreement or understanding made in around April 2004 between various individuals including the defendant, Jason Poon and Daisy Poon that the defendant would own the Itamae Sushi service marks and be at liberty to open further sushi businesses using those service marks.  Finally, the misrepresentation defence is said to be based on the condition precedent referred to in paragraph 13 above.

58. By reason of the misrepresentation defence, the defendant maintains that the Hero Elegant Agreement was liable to be rescinded ab initio.  He also maintains that the plaintiff’s application to register the Itamae Sushi service marks amounted to a repudiatory breach of the Hero Elegant Agreement and that, following his discovery of this on 27 November 2006, he confronted the plaintiff in around December 2006 and, in the face of Jason Poon’s refusal to withdraw the application, he terminated the Hero Elegant Agreement.  As contended in the defendant’s Skeleton Submissions : “Either way the Hero Elegant Agreement has come to an end — by rescission for misrepresentation, or by acceptance of the repudiatory breaches.”

59. Subject to these defences, the defendant does not put forward any positive case in opposition to the factual premises on which the plaintiff’s allegations of breach of the Hero Elegant Agreement are based.  Thus, in relation to breaches (1) and (2), it was not suggested by the defendant that he had in fact established Hero Elegant or that he had transferred the shares in the companies operating the various Itamae Sushi restaurants to a holding company in which 31% of the shares were held by the plaintiff.  As for breach (3), the defendant’s case is, in essence, a bare denial.

Has the Hero Elegant Agreement been rescinded for misrepresentation?

Misrepresentation based on alleged 2004 agreement and/or condition precedent

60. I am not persuaded that the alleged agreement reached in 2004 or the condition precedent relied upon by the defendant gives rise to a triable issue.

61. Even if the alleged 2004 agreement and condition precedent are assumed to be true, both are rendered ineffective by the entire agreement clause in the Hero Elegant Agreement : see per Lightman J in Inntrepreneur Pub Co. (GL) v. East Crown Ltd [2000] 2 Lloyd’s LR 611 at para. 7.  The clause (set out in paragraph 24 above) is, in my view, of sufficient width to capture pre-contractual statements whether characterised as misrepresentations or collateral agreements.

62. An additional point relating to the alleged 2004 agreement is that the plaintiff was only incorporated in May 2006 and so it is difficult to see how it could be bound by an agreement allegedly made in April 2004.

Misrepresentation based on terms of Hero Elegant Agreement

63. In the interpretation clause of the Hero Elegant Agreement, the term “Service Marks” is defined to mean: “the service marks bearing the name of ‘ITAMAE SUSHI (板前壽司)’ used in the course of or associated with the Business and currently applied for registration in the name of Party A, as more particularly set out in the Schedule hereto”.  The defendant is identified as Party A under the Hero Elegant Agreement.

64. The defendant relies on the combined effect of the above definition of the term “Service Marks” and clauses 14.2 and 14.4 in the Hero Elegant Agreement to support his contention that there was a representation that nobody other than the defendant was entitled to registration of the service marks and that no one else had in fact purported to make a competing claim to register those service marks.

65. I am also not persuaded that the alleged misrepresentation defence based on the terms of the Hero Elegant Agreement gives rise to a triable issue.

66. I agree with the submission of Mr Paul Shieh SC, leading counsel for the plaintiff, that the provisions of the Hero Elegant Agreement relied upon are part of the contract itself and therefore can only take effect, if at all, as contractual warranties and not as pre-contractual representations.

67. Furthermore, I am unable to see how the necessary element of reliance can be established by the defendant.  I agree with Mr Shieh SC that insofar as the alleged existing fact, of which a misrepresentation must consist, consists of the fact that there was at the time of the execution of the Hero Elegant Agreement a pending trademark application in respect of the Itamae Sushi service marks in the name of the defendant, this must have been known by the defendant not to be true since he had not, by that stage, submitted any such trademark application.

68. Had the defence to the action been confined to the misrepresentation defence, I would not have been persuaded that any triable issue had been raised by the defendant.

Has the Hero Elegant Agreement been terminated by acceptance of the plaintiff’s repudiatory breach(es)?

69. The asserted defence, namely that the Hero Elegant Agreement has been terminated by the defendant’s acceptance of the plaintiff’s repudiatory breach, if credible, plainly gives rise to a triable issue.  It is necessary to consider two aspects of the asserted defence; first, whether it is arguable that there was any breach of the Hero Elegant Agreement on the part of the plaintiff and secondly, whether it is arguable that the defendant brought the contract to an end by accepting the breach.

70. It is the defendant’s case that the plaintiff has acted in breach of an implied term of the Hero Elegant Agreement to the effect that the plaintiff, whether by itself or through Jason Poon, would assist and support the defendant’s registration of the Itamae Sushi service marks or at least would not obstruct the same or put up competing registrations or claims.

71. The above implied term is not pleaded in the Amended Defence.  Instead, it was identified for the first time in the defendant’s affirmation in opposition to the plaintiff’s summary judgment summons.

72. The plaintiff maintains, for its part, that the implied term relied upon by the defendant is neither obvious nor necessary.  Mr Shieh SC submitted that the combined effect of the provisions of the Hero Elegant Agreement relied upon by the defendant as giving rise to the implied term, namely the definition of Service Marks and clauses 14.2 and 14.4, is not concerned with the identity of the party who is the registered owner of the trademarks but instead is focused on the question of who is permitted to use the trademark during the lifetime of the Hero Elegant Agreement.

73. Thus, he submitted that the combined effect of clauses 14.2 and 14.4 of the Hero Elegant Agreement is such that it makes no difference, for as long as the plaintiff remains a shareholder of Hero Elegant, whether the trademarks are vested in the defendant’s name.  He contended that, because of clause 14.5, whoever owns the trademarks, whether it be the plaintiff or the defendant, the relevant trademarks are to be used for the benefit of the business of Hero Elegant : the business of the group being defined as the business of establishing, managing and operating Japanese-style chain restaurants and related business using the Service Marks (see clause 2.1).  The defendant could not, he submitted, utilise the trademarks in order to open new Itamae Sushi restaurants for his own benefit.

74. For these reasons, Mr Shieh SC submitted that the dispute between the parties concerning the competing trademark applications was nothing but a red herring and that it did not matter which other party prevailed in the trademark dispute.  He maintained that the normal incidents of trademark law would determine whether the defendant or the plaintiff was entitled to registration.  If the defendant were to prevail in those proceedings, then he would be obliged to use the trademarks only for the purpose of Hero Elegant’s business and to grant exclusive licenses pursuant to clause 14.5 in respect of new restaurants utilising the Service Marks for so long as the plaintiff remained a shareholder.  If the plaintiff were to prevail in those proceedings, it would likewise be obliged to use the trademarks for the purpose of the business of Hero Elegant. 

75. It was Mr Shieh SC’s submission that it would only be when the plaintiff ceased to be a shareholder of Hero Elegant that any issue as to the defendant’s entitlement to unqualified trademark rights would arise.  At that time, which has not been reached since the plaintiff wants to continue with its participation in Hero Elegant, he maintained that the matter would be adequately dealt with by implying an obligation on the plaintiff to procure the transfer of the trademarks to the defendant.

76. In my judgment, the question of whether there is an implied term of the nature contended for by the defendant does give rise to a triable issue.  It is reasonably arguable, in my view, that the underlying premise of the Hero Elegant Agreement was that the Itamae Sushi service marks should be registered in the name of the defendant.  The definition of Service Marks in clause 1.1 of the Hero Elegant Agreement is plainly drafted on that basis.  Similarly, the structure of the provisions relating to the conduct of business in clause 14 are all consistently drafted on the basis that the defendant would be the owner of the trademarks and would grant licences to the companies operating the restaurants to use those trademarks. 

77. It is not necessary for the defendant to show that he will prevail on this issue at trial: at this stage all that is necessary is that the defendant show that the issue is arguable (see paragraph 51 above).

78. On the footing that the term contended for by the defendant is to be implied in the Hero Elegant Agreement, there can be no real dispute that it is at least arguable on the facts that the plaintiff was in breach of that implied term.  The plaintiff has at no time withdrawn or discontinued its application made on 9 August 2006 to register the Itamae Sushi service marks.  Instead, on 19 January 2007, the plaintiff assigned its trademark applications to Jason Poon and in turn, on 28 May 2007, Jason Poon executed a declaration of trust in favour of the plaintiff in respect of the pending trademark applications.

79. The fact that Jason Poon has made an open offer by letter dated 26 August 2009 to withdraw his pending trademark applications, on certain conditions, does not detract from the fact that, as at the date when the defendant asserts he accepted the plaintiff’s repudiatory breach, the plaintiff was maintaining an application for registration of the trademarks inconsistent with the implied term.

80. It is therefore necessary to consider if there is a triable issue as to whether the defendant has duly accepted any repudiatory breach on the part of the plaintiff.

81. For its part, the plaintiff maintains that the Hero Elegant Agreement has not been duly terminated by the defendant.  It relies on two arguments for the purposes of this summary judgment application: the first is that an acceptance of any repudiatory breach was required to be given in writing pursuant to clause 20.1 of the Hero Elegant Agreement and that, since the acceptance of the repudiatory breach relied upon is purely oral, there can have been no proper termination of the agreement; the second argument is that, on the evidence before the court, the asserted defence that the defendant terminated the agreement by reason of the alleged repudiatory breach is not capable of belief and therefore does not give rise to a triable issue.  I shall deal with each of these two questions in turn.

82. Clause 20.1 of the Hero Elegant Agreement, under the heading “Notices”, provides as follows :-

“Any notice claim, demand, court process, document or other communication to be given under this Agreement (collectively ‘communication’ in this Clause) shall, subject to any requirements under the applicable laws, be in writing in the English language and may be served or given personally or sent to the address or facsimile number (if any) of the relevant party and marked for the attention and/or copied to such other person as specified in Clause 20.4.”

83. Mr Shieh SC submitted that clause 20.1 was worded sufficiently widely to be able to capture a communication of an acceptance of a repudiatory breach.  He contended that whatever the term “other communication” means, it must include notice of a party’s intention to terminate the contract.  He argued that the rationale of a clause like clause 20.1 was precisely to obviate any argument that in an oral confrontation a party had called off the agreement.

84. Ms Audrey Eu SC, leading counsel for the defendant, submitted, on the other hand, that a clause of the nature of clause 20.1 was a common term in written agreements, the function of which was merely to inform the parties of the formalities for serving notice.  She submitted that it could not override the general law relating to the termination of the contract.  She relied in this context on the proposition that an act of acceptance of a repudiation requires no particular form : see Chitty on Contracts (30^th Ed.) Vol. 1 at §24-013 and Vitol SA v. Norelf Ltd [1996] AC 800 at 810-811.

85. Ms Eu SC also submitted that clause 20.1 plainly served the purpose of stipulating the manner in which notices required to be given under various other clauses in the Hero Elegant Agreement (for example, under clauses 5.3, 8.1, 13.2, 13.3(b), 13.5, 19.1 and 20.5) should be given.  It was not, she submitted, the intention of clause 20.1 to override the general law as regards the termination of a contract.

86. I think Ms Eu is correct in her submission that clause 20.1 does not have the effect contended for by the plaintiff.  I do not regard the phrase “under this Agreement” in clause 20.1 as obviously relating to the acceptance of a repudiatory breach.  In any event, the issue is at least arguable.  For the purposes of this summary judgment application, that conclusion is sufficient to answer a point on which, if the plaintiff were to have succeeded, would amount to a complete answer to the defendant’s contention that he had lawfully terminated the Hero Elegant Agreement by accepting the plaintiff’s repudiatory breach of it.”

87. This leaves the plaintiff’s argument that, in any event, the evidence as to the termination of the agreement is simply not capable of belief.  The crux of the defendant’s evidence is contained in paragraph 34 of his affirmation.  After having described his discovery that the plaintiff had made an application for the registration of the trademarks and his confrontation with Jason Poon in December 2006, the defendant there states :

“Therefore, at that occasion I called off the Hero Elegant Agreement and told Jason Poon on behalf of the Plaintiff that since he refuses to rectify the breaches I will treat myself as relieved from the Hero Elegant Agreement.  In addition to Mr. Leung Sai Ming also known as Gary Leung, Mr. Eugene Wong, Mr. Francis Chan, Miss Daisy Poon and Mr. Shigemitsu Katsuaki also heard me say so.  I am advised and verily believe that the Hero Elegant Agreement was thereby rescinded or alternatively terminated.”

88. Mr Shieh SC made a number of submissions in respect of the defendant’s evidence in advancing the submission that it was inherently incredible.

89. First, Mr Shieh SC submitted that none of the persons alleged to have been present at the meeting, including the defendant’s solicitor, Gary Leung, has come forward to corroborate the defendant’s story.  In response to that submission the defendant issued a summons on 8 April 2010 seeking leave to file and serve an affirmation of Mr Leung Sai Ming in which he confirmed he was present at the confrontation between the defendant and Jason Poon and that he witnessed the defendant calling off the Hero Elegant Agreement when Jason Poon refused to withdraw his trademark applications. 

90. Mr Shieh SC was content for me to read the affirmation of Mr Leung de bene esse but maintained that the defendant should not be given leave to file it.  I do not regard the affirmation as adding materially to the strength of the defendant’s case.  The timing of the preparation of this affirmation, in response to a submission in the skeleton argument for the plaintiff, robs the affirmation of much of its force.  In the light of the plaintiff’s objection, the lateness of the application and the fact that I do not regard the content of the affirmation as materially helpful to the defendant, I decline to exercise my discretion to grant leave to the defendant to file and serve it.  It follows that I dismiss the defendant’s summons dated 8 April 2010 with costs to the plaintiff.

91. However, I do not regard the absence of evidence from any of the other persons said to have been present at the confrontation in December 2006 as being fatal to the defendant’s assertion that he called off the agreement at that time.  The credibility of evidence does not depend upon the number of witnesses giving any particular account of events but rather on the inherent probabilities of the evidence itself.  The same point Mr Shieh SC makes as to the absence of corroboration from Mr Leung could equally be made by Ms Eu SC in respect of the absence of contrary corroborating evidence from Daisy Poon for the plaintiff.

92. Secondly, it was submitted that, if the confrontation and calling off took place in the circumstances alleged, it is inconceivable that the defendant’s solicitor, Gary Leung, would not have followed this up in writing.

93. Thirdly, it was submitted that the defendant has not been able to produce any contemporaneous document consistent with his having called off the agreement in December 2006.

94. The absence of any written confirmation of the calling off of the Hero Elegant Agreement is a factor which does call the defendant’s assertion into serious question.  There was justification in Mr Shieh SC’s observation that the evidence demonstrates that the defendant is not an unsophisticated person.  On the contrary, he appears to be an experienced businessman.  The defendant had the benefit of legal advice in relation to the Hero Elegant Agreement and there is some force in the submission that, in those circumstances, the defendant would be likely to consult his lawyers, who in turn would most likely advise him to record his termination of the agreement on the grounds of the plaintiff’s repudiatory breach in writing.

95. However, it is important to bear in mind that, at the summary judgment stage, all that the defendant needs to show is that his case is capable of being believed, not that it will be believed at trial.  It is not for me to rule out a defence simply because I think the defence would not be believed by a trial judge because of some inherent weaknesses.

96. What is incontrovertible is that it is plainly arguable that the Hero Elegant Agreement contemplated that the defendant would be the registered owner of the trademarks.  Instead, shortly before the agreement was signed, the plaintiff made his own application to register those trademarks.  Even if that application was made in ignorance of the terms of the Hero Elegant Agreement (since it had yet to be executed), there is no suggestion that the plaintiff disclosed the fact of his application to the defendant at the time the agreement was signed or that he took any steps to withdraw his application to enable the defendant to proceed with his registration for application of the trademarks.

97. So far as the defendant’s own evidence is concerned, he has deposed to the fact that he was completely and utterly surprised when he discovered that the plaintiff had already applied to register the trademarks.  In those circumstances, I do not think it can be said that the defendant’s evidence that he had lost all trust in the defendant and wished to call off the agreement is not capable of belief.  That reaction is one which is eminently within the band of likely responses to the plaintiff’s actions by a person in the defendant’s position believing himself to be entitled to be the registered owner of the trademarks.

98. Fourthly, Mr Shieh SC submitted that it was instructive to note that, in his affirmation made on 26 February 2009 in the trademark proceedings, the defendant alleged that his legal advisers had been informed by the Trade Mark Registry about the plaintiff’s application but did not say anything about the alleged meeting in December 2006 at which he allegedly called off the agreement.

99. Whilst this point provides some support for the plaintiff’s submission that the defendant’s evidence should not be believed, I do not think the point is so strong as to deprive the defendant’s evidence of the capacity of being believable.  The affirmation in question was prepared for a particular purpose, not related to the dispute concerning the Hero Elegant Agreement itself, and this may explain the omission of a statement that the defendant called off the agreement at this time.

100. It is certainly clear that the defendant no longer considered himself bound by the Hero Elegant Agreement from December 2006 onwards.  The plaintiff pointed to the fact that the defendant proceeded to open the fourth and fifth Itamae Sushi restaurants even after the agreement had been signed but before his discovery of the alleged repudiatory breach of that agreement by the plaintiff.  Again, whilst this will be a fertile matter for cross-examination at a trial, I do not think this fact on its own demonstrates that the defendant’s case is wholly unbelievable.  The chronology of events is such that it is possible the defendant was intending to arrange the affairs of the fourth and fifth restaurants in accordance with the terms of the Hero Elegant Agreement and that events simply overtook his intentions.  Whether this is in fact the case can only properly be decided after hearing cross-examination.

101. Finally, Mr Shieh SC relied upon the fact that in a series of e-mails in February and March 2007 there were communications in which the defendant is recorded as having made proposals on the basis that the Hero Elegant Agreement was still on foot.

102. No explanation for these e-mails has been provided by the defendant.  On the other hand, the evidence is not directly from the defendant himself but is second-hand material reporting what the defendant is alleged to have said.  Having reflected on the contents of the e-mails, I am in agreement with Ms Eu SC that it will be necessary to hear evidence on them in order to determine their true effect.

103. At the end of the day, whilst the evidence concerning the defendant’s alleged calling off of the Hero Elegant Agreement is certainly not strong, I am persuaded that he has done enough to raise a triable issue in respect of the repudiatory breach defence.

Other considerations

104. For the sake of completeness, I record that Ms Eu SC also argued that it would be inappropriate for the court to grant summary judgment for the agreement to be specifically performed by reason of the doctrine of laches and on the basis that the plaintiff did not have clean hands.

105. On the issue of laches, I agree with Mr Shieh SC that this only arises as a triable issue in the event the defendant makes good its allegation of having called off the agreement in December 2006.  But on that basis, as he observed, the defendant would be granted leave to defend in any event.  It was the plaintiff’s case that it only discovered the defendant’s failure to incorporate the holding company in about June 2008 shortly before the issue of the writ.

106. As for the issue of clean hands, I do not think that this argument on its own would have been sufficient to entitle the defendant to leave to defend.  However, as I have concluded that there is a triable issue in respect of the repudiatory breach defence, I need say no more on this argument.

107. I would, however, observe that the claim being one for specific performance, I would have been reluctant to enter summary judgment for that equitable remedy in the face of a factual background which plainly showed the two principal parties behind the agreement to have lost mutual trust.  Specific performance is a discretionary remedy and whether or not the court should exercise its discretion to grant that remedy rather than to leave the parties to their alternative remedy in damages, is a question which, on the facts of this case, I consider ought properly to be left to trial.

108. I would also add that I have reflected on the question of whether this might be an appropriate case for conditional leave to defend to be given in view of the persuasive submissions made by Mr Shieh SC to the effect that the defendant’s evidence was not credible.  However, I have ultimately come to the conclusion that the defendant has shown enough to demonstrate a triable issue and, in those circumstances, the right disposition of the application is to grant unconditional leave to defend.  In any event, in an application under Order 86, it is, as noted in Hong Kong Civil Procedure 2010 (Vol. 1) at Note 86/4/1 (on p. 1390), unusual for conditional leave to defend to be given in claims for specific performance.

109. A further point to record is that, in the minutes of order setting out the judgment sought by the plaintiff, the plaintiff sought an account of the profits made by the companies operating the respective Itamae Sushi and Itacho Sushi restaurants since April 2004.  The defendant objected to this period of account, since it related to a period of more than two years before the date of the agreement for which specific performance was being sought.  In the face of this objection, Mr Shieh SC accepted for the purposes of this summary judgment application that the period of account sought should be limited to the period since the date of the Hero Elegant Agreement (namely 16 September 2006) with the claim for an account of profits for any earlier period being left to trial.

110. Similarly, I do not think it appropriate that the plaintiff’s claim that the shares in the companies operating the Itacho Sushi restaurants be transferred to a holding company pursuant to the Hero Elegant Agreement should be determined on a summary basis.  I would not, therefore, have granted paragraph 4(b) of the plaintiff’s minutes of order on a summary basis in any event.

Disposition and costs

111. It was contended in the defendant’s skeleton argument that the summons should be dismissed since it was clear from the Amended Defence and the defendant’s affirmation evidence that there were triable issues.  However, as I have noted above (see paragraph 71), the implied term on which the repudiatory breach defence is based was only lately disclosed in the defendant’s affirmation and does not appear in the Amended Defence.  I therefore do not think it right to dismiss the summons but instead, for the reasons set out above, I consider that the appropriate order on the plaintiff’s summons under Order 86, rule 1 is that the defendant should be granted unconditional leave to defend.

112. I make an order nisi that the costs of the plaintiff’s summons be costs in the cause with a certificate for two counsel.

113. I grant liberty to both parties to apply in the event they wish any further case management directions in relation to the further conduct of this matter.

114. As noted in paragraph 90 above, I dismiss the defendant’s summons to serve and file the affirmation of Mr Leung with costs to the plaintiff.