LEE KAR SHUEN AND OTHERS v. Hhome Café LTD

DCCJ 3190/ 2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3190 OF 2006

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DECISION

The plaintiffs' case

1. The plaintiffs as the franchisee and the defendant as the franchisor entered into a series of franchise agreements.  The plaintiffs had the option to sell back the business to the defendant within a stipulated period of operation.  Sometime within this period, the plaintiffs notified the defendant to exercise this option.  The defendant failed to pay up.  The plaintiffs took out a writ of summons.  Before the defendant filed its defence, the plaintiffs took out the present summons for summary judgment. 

The defendant's case

2. The defendant argued for:

(1)	An issue of law that the agreements were frustrated;
(2)	An issue of fact that the agreements were not properly executed;
(3)	An issue of fact that the agreements lacked particulars; and
(4)	An issue of fact that the plaintiffs failed to incorporate a company to take up the agreements.

I would go into each issue in due course. 

Legal principle

3. The defendant set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial.  [Hong Kong Civil Procedure para 14/4/9]. 

Evidence in the present summons

4. There are 2 affirmations from the plaintiffs, each with exhibits, and 1 affirmation from the defendant, without exhibits, as follows:

(1)	Lee Kar Shuen, the 1st plaintiff, made his 1st affirmation on 24 July 2006 [A21 – 26];
(2)	Wong Ching Chung, the company secretary of the defendant, made an affirmation on 8 August 2006 [A27 – 29];
(3)	Lee Kar Shuen made his 2nd affirmation on 5 September 2006 [A33 – 36].

5. On 3 August 2006, Master T. Chan had ordered that no further affirmations could be used without the leave of Court.  Both the plaintiffs and the defendant are content to proceed with the hearing today with the existing affirmations. 

The fact put forward by the plaintiffs

6. On about 23 August 2005, the 1^st, 2^nd, and 3^rd plaintiffs and the defendant entered into an agreement (“the 1^st Agreement”) which was evidenced by a Franchise Agreement in writing dated 31 August 2005 [B21 – 35] in respect of Shop 12, 1^st Floor, Causeway Centre, 18 Harbour Road, Wanchai, Hong Kong (“the 1^st Business”).  The 1^st, 2^nd, and 3^rd plaintiffs had the option to sell back the business to the defendant at a 20% discount of the initial investment cost with a refund of all deposits before the end of the fifth month of operation [Cl. 21.1 of B31]. 

7. On about 15 September 2005, the 1^st and 2^nd plaintiffs and the defendant entered into an agreement (“the 2^nd Agreement”) which was evidenced by a Franchise Agreement in writing dated 8 November 2005 [B37 – 51] in respect of Shop 11, 1^st Floor, Causeway Centre, 18 Harbour Road, Wanchai, Hong Kong (“the 2^nd Business”).  The 1^st, and 2^nd plaintiffs had the option to sell back the business to the defendant at 100% of the initial investment cost with a refund of all deposits before the end of the fifth month of operation [Cl. 21.1 of B47]. 

8. On about 7 November 2005, the 3 plaintiffs and the defendant entered into an agreement (“Variation Agreement”) which was evidenced by the defendant's letter dated 8 November 2005 [B53] to vary certain terms of the 1^st Agreement and the 2^nd Agreement. 

9. The 1^st Business and the 2^nd Business were being operated together as a cafe in the trade name of "1842".  The Business Registration Office’s records dated 9 December 2005 [B75 – 83] showed that both Shops 11 and 12 were operated in the name of “1842” since 1 December 2005.  A printout from the internet on 5 September 2006 also presented a profile of “1842” [B85 – 90]. 

10. On 30 December 2005, the 3 plaintiffs served a letter dated the same [B55 – 57] on the defendant to exercise the option to sell back the 1^st Business and the 2^nd Business to the defendant. 

11. Pursuant to the aforesaid, the defendant took back the 1^st Business and the 2^nd Business and had the full control of them since then.  However, it failed to pay up to the 3 plaintiffs. 

The fact put forward by the defendant

12. Wong's affirmation only criticized the plaintiffs' 1^st affirmation.  It contained no evidence.  

This Court’s findings

On ground (1) that as a matter of law the agreements were frustrated

13. In the middle of submissions, the defence did not pursue this ground.  I can see no sign of a frustrated agreement, either. 

On ground (2) that asa matter of fact the agreements were not properly executed

14. The defence referred to the front cover of the 2^nd Agreement [B37], which named only the defendant and the 2^nd plaintiff as the contracting parties.  At the signing page [B48] it was stated that "[the 2^nd plaintiff] and/or [the 1^st plaintiff]" signed.  The defence argued that it was an issue of fact as to who of the plaintiffs was/were the contracting party or who signed it.  I do not agree.  The defence did not refer to the 1^st plaintiff's 2^nd affirmation [para 4 of A34], which stated that at that juncture, Wong of the defendant, and the 2^nd plaintiff and he himself (the 1^st plaintiff) were present.  There were 2 sets of the agreement.  The plaintiffs were in a hurry as they were only meeting Wong to sign the agreement during lunch break between their work hours.  Wong advised that the 1^st and 2^nd plaintiffs each only needed to sign one set.  They did as advised.  The exhibited set was the set signed by the 1^st plaintiff whereas Wong kept the other set signed by the 2^nd plaintiff.  The reference to a single plaintiff (the 2^nd plaintiff) at the front cover was inconsistent with other parts of the agreement [Cl. (2), Cl. 1.1 of B38, B48, Schedule 1 of B49].  All these could only suggest that the front cover was a typo.  There was nothing in the plaintiffs' case or the defendant's case to counter this allegation on the part of the 1^st plaintiff or this suggestion from the said evidence.  I do not find this an issue of fact. 

15. The defence referred to the signing page [B48] of the 2^nd Agreement.  No witness signed the witnessing part.  The defence argued that the agreement had purported to be a deed but failed to be one as it was not witnessed.  I asked whether the 2^nd Agreement had to be a deed to be valid.  The defence argued that it might or might not.  I asked the defence for further details and authorities.  The defence had none.  I reject this argument. 

16. The defence complained on behalf of the plaintiffs that there was no termination clause in the 2^nd Agreement.  I do not agree.  Clause 12.2 [B45] provided for the plaintiffs' right to terminate the 2^nd Agreement.  Even if such a right were missing, it would be a complaint to be made at the instance of the plaintiffs, not the defendant. 

17. The defence complained that clause 21.1 [B47] of the 2^nd Agreement did not clearly state what sum the defendant would have to compensate the plaintiffs upon the plaintiffs exercising the option to sell back the business to the defendant.  I do not agree.  It was stated clearly to be 100% of the initial deposit (which was under Schedule 3 [B50]) and all deposits already paid to the defendant to operate the 2^nd Agreement (which was easily ascertainable from accounting records).  I reject this argument.        

18. The defence referred to the Variation Agreement [B53].  It was in the form of a letter, which read (with all the original typos retained):

19. The defence argued that the heading referred to "Shop 12" whereas para 3 referred to "Shop 11 and 12".  It was an inconsistency which rendered the letter either unclear in meaning or void.  I do not agree.  The defence ought to have noticed the 1^st plaintiff's affirmation [para 7 of A23], which stated that it was actually agreed between the defendant and the 3 plaintiffs on 7 November 2005 that both shops were to be included.  The defence did not put forward any evidence to counter this allegation.  I do not find any fact in issue here.      

20. The defence argued that it was only worded as an "offer", as stated in paragraph 1 thereof.  There was no evidence of acceptance by the plaintiffs.  In the premise, there was no contract.  I do not agree.  First, the defence did not submit on the commencing word "We hereby agree".  Secondly, the sum of HK$145,000.00 was to be sent to the defendant on or before 15 November 2005.  It was to be performed by stages.  It was not an offer.  Thirdly, the defence ought to have noticed the 1^st plaintiff's affirmation [para 7 of A23], which stated that it was actually agreed between the defendant and the 3 plaintiffs on 7 November 2005 that the terms were evidenced by this letter.  The defence did not put forward any evidence to counter this allegation.  I do not find any issue of fact. 

21. The defence referred to the 2^nd Agreement, which allowed the 1^st and 2^nd plaintiffs to sell back the 2^nd Business to the defendant at “20% discount” of the initial investment cost with a refund of all deposits [Cl. 21.1 of B31].  The defence argued that it was inconsistent with paragraph 3. of the letter above, because paragraph 3. provided for “100%” of all such monies back.  I understand that it was meant to be a variation of the previous terms.  The 1^st plaintiff actually called it the Variation Agreement.  I see no point in advancing this argument on the part of the defence.      

22. The defence initially submitted on the absence of consideration for the variation.  I asked whether the reversion of management to the hands of the defendant could be regarded as the consideration.  Further or in the alternative, paragraph 2. also required the plaintiffs to send HK$145,000.00 to the defendant on or before 15 November 2005.  Eventually the defence decided not to argue this point at the present hearing.  I think that either of these could be regarded as consideration for the variation. 

23. The defence referred to the 3 plaintiffs' letter dated 30 December 2005 to the defendant [B55] in purported exercise of the option to sell back the 1^st Business and the 2^nd Business to the defendant.  The defence argued that, even assuming that there was such an option, the 3^rd plaintiff had no right in the 2^nd Business and his joinder in the letter would invalidate the option.  I see no basis for the inclusion of the 3^rd plaintiff to ill-affect the interest of the 1^st and 2^nd plaintiffs in the 2^nd Business.  I find this a patently bad argument.   

24. The defence argued that the letter provided for 2 months to repay the plaintiffs whereas the Variation Agreement only provided for 6 months.  This showed that the Variation Agreement did not exist for lack of acceptance by the plaintiffs or that the parties were not ad idem.   I understand from this letter that the 3 plaintiffs would exercise the option with immediate effect.  Whilst the time provided for payment (namely 2 months) was not consistent with the Variation Agreement (namely 6 months), I think one could sever this term from the rest of the letter.  It would not affect the part in exercise of the option.  I do not agree with the defendant’s argument.       

On ground (3) that as a matter of fact the agreements lacked particulars

25. The defence submitted that there were 5 agreements alleged by the plaintiffs as follows:

(1)	An oral agreement on about 23 August 2005;
(2)	A written agreement dated 31 August 2005 (namely, the said "1st Agreement") evidencing the said oral agreement of 23 August 2005;
(3)	An oral agreement on about 15 September 2005;
(4)	A written agreement dated 8 November 2005 (namely, the said "2nd Agreement") evidencing the said oral agreement of 15 September 2005;
(5)	A written variation agreement dated 8 November 2005 (namely, the said "Variation Agreement").

26. The defence argued that the plaintiffs failed to give any particulars as to the terms of the 2 oral agreements.  It therefore became a triable issue of fact as to their terms and effect.  I do not agree.  The plaintiffs' pleaded case [paras 2, 4 of A3] as well as the 1^st plaintiff's affirmation [paras 3, 4 of A22] clearly stated that the 2 oral agreements were "evidenced by" the 2 written agreements.  The defence was unable to point to any inconsistencies amongst the 2 oral agreements and the 2 written agreements.  I see no difficulty or ambiguity in getting all the terms and effect from the 2 written agreements which were said to evidence the 2 oral agreements.

On ground (4) that as a matter of fact the plaintiffs failed to incorporate a company to take up the agreements

27. The defence referred to the front covers of the 1^st and 2^nd Agreements respectively [B21, B37].  In the former, the 3 plaintiffs signed as the nominee of a company limited to be incorporated.  In the latter, the 2^nd plaintiff signed as the nominee of a company limited to the incorporated.  Eventually no company limited was incorporated.  The defence argued that if the plaintiffs turned out to be men of straw, the defendant’s remedies would be prejudiced.  I do not agree.  If the defendant were concerned that no company limited would be incorporated, the defendant could refuse to sign the 2 written agreements.   In any event, there was no evidence that the plaintiffs were or likely to be men of straw or that the company limited would have a solid financial standing.  There is no basis for this argument.  I do not find any issue of fact.    

On the plaintiff’s Order 14 summons

28. The defence set up fails to show that there is a triable issue or question or that for some other reason there ought to be a trial.  

The conclusion

29. I give final judgment to the plaintiffs in the present summons with interest at judgment rate from the date the Amended Writ of Summons was filed.  I order costs nisi with a certificate for counsel to the plaintiffs.  This order shall become absolute after 14 days from today.