STORE FRIENDLY SELF STORAGE GROUP LTD v. WALON ENTREPRENEURS LTD

HCA 499/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 499 OF 2017

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DECISION

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1.  The plaintiff seeks an interlocutory injunction under Order 29 rule 1, Rules of the High Court, to restrain the defendant company from continuing to operate a mini storage facility in the Kwai Chung area in breach of a Franchise Agreement entered into on 29 September 2011 between the defendant Walon and Store Friendly.

2.  The original franchise term was for a period of five years ending on 28 September 2016 at which time it is clear from the correspondence that the plaintiff and defendant had intended to enter into a new agreement but the defendant had not paid the renewal franchise fee and therefore according to the plaintiff clause 12.1, 12.3.1, 12.3.3 and 15.1 come into play.  In short, the defendant is precluded from operating as a purported franchisee of Store Friendly or in its own right in the same or similar business for a period of one year and is subject to a non‑solicitation agreement for the same period.

3.  The plaintiff maintains that since September 2016 the defendant has done just that in breach of the aforementioned clauses.

4.  The issue before the court is therefore whether there is a serious question to be tried in due course upon the issue of whether the restraint clauses are reasonable in all the circumstances as between these two parties dealing at arm’s length in September 2011 and if so whether the defendant is prima facie in breach thereof.  If there is, then would damages be adequate compensation rather than immediate interlocutory injunctive relief?  If not, where does the balance of convenience lie?

5.  It is clear that the plaintiff has a legitimate business interest to protect and the clauses before me seek to do no more than is reasonable to protect that interest.  There is in my view on the papers a serious question to be tried.

6.  Whilst it would be relatively easy to a calculate the number of existing clients who continued to receive the services provided by the defendant, I believe it may be more difficult to calculate the extent to which new customers were acquired through the ongoing use of the telephone number previously used by Store Friendly and/or by word of mouth, although I accept that the defendant made it clear that it was a new company operating under a new name, it nevertheless benefitted from customers who believed they were communicating with Store Friendly.  Further the plaintiff maintains that there will be significant damage to their reputation in so far as these restraint of trade clauses are mirrored in 80 other franchise agreements and allowing the defendant to act in this manner in clear breach of such an agreement would have an effect upon the attitude of other franchisees in respect of possible breach.  As such, I am of the view that damages would not necessarily be adequate compensation and that the question of balance of convenience falls to be considered.

7.  Walon made a deliberate attempt to secure the ongoing business of the plaintiff and has no doubt employed all of the plaintiff’s proprietary systems within its new operations and continues to do so to the detriment of the commercial interests of the plaintiff in the Kwai Chung area. They do not appear today.

8.  Accordingly, upon an undertaking in damages by the plaintiff that if the court later finds that this order has caused loss to the defendant or any other party and decides that the defendant or that other party should be compensated for that loss, the plaintiff will comply with any order the court may make, it is ordered that the defendant whether by itself, its directors, servants, agents or otherwise be restrained from continuing to operate mini storage or any storage business within the Kwai Chung region as identified within Schedule III annexed to the Franchise Agreement dated 29 September 2011 until judgment in this action, or further order of the Court or 28 September 2017, whichever is the earlier with liberty to apply.

9.  Costs of this application be in the cause.