TRANSCORP HOLDINGS LTD v. CHAN KOON CHOW

HCA 2719/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2719 OF 2016

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D E C I S I O N

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Background

1.  This is an appeal by the plaintiff (“THL”) against the order of the Master, who refused to enter summary judgment on THL’s claim against the defendant (“Chan”) and granted unconditional leave to Chan to defend the action.

2.  By the Statement of Claim filed in these proceedings, THL claims that Chan was in breach of an agreement dated 28 May 2015 made between THL and Chan (“Agreement”).  Under the Agreement, the parties agreed “to get the Exclusive Wholesale Distribution Right of Gucci merchandise in Mainland China, Thailand, Singapore and Taiwan” (“Exclusive Right”).  The Agreement provides that in order to secure the chance of obtaining the Exclusive Right, THL agreed (through Madam Wan Zhen Chu (“Chu”)) to make a remittance of €2 million to a specified company, Incorp sal (“Incorp”), as earnest money on or before 29 May 2015.  Under the Agreement, Chan agreed “to do his utmost” to get the Exclusive Right on or before 30 June 2015, and to reimburse the €2 million to THL not later than 2 July 2015, without interest, if the Exclusive Right cannot be granted to a specified company, Worldwide China Distribution Co Ltd (“WW China”).

3.  Under the Agreement, the parties further agreed to set up WW China as a joint venture, with 68% of its shares to be held by THL and 32% to be held by Chan.

4.  The Agreement provides for the laws of Hong Kong to be the governing law.

5.  It is not disputed that before the Agreement was signed, another agreement had in fact been signed between THL and Chan (“Goh Agreement”).  The terms are identical, save that the Goh Agreement specified Mr Boris Goh (“Goh”) instead of Chu, in the reference to the remittance of €2 million being made on behalf of THL.  The Agreement was signed by Chu on behalf of THL, whereas the Goh Agreement was signed by Goh on behalf of THL.  According to Chan, it was at the request of Goh that the Agreement was signed to replace the Goh Agreement and the purpose was to facilitate the transfer of the earnest money.

6.  There is no dispute that the €2 million was transferred to Incorp on 29 May 2015.

7.  THL claims that in breach of the Agreement, WW China never came into existence, and Chan failed to obtain the Exclusive Right for WW China at all.  Accordingly, THL claims Chan’s repayment of the sum of €2 million.

8.  By way of defence, Chan claims that he has successfully secured the grant of the Exclusive Right pursuant to the Agreement. He further claims that THL and he had agreed to use another company, Worldwide Premium Distribution Company Limited (“WW Premium”), as the joint venture vehicle instead of WW China, and that by an agreement entitled Exclusive Distribution Agreement dated 17 June 2015 and signed by Incorp and Goh on behalf of WW Premium (“Incorp Agreement”), the Exclusive Right had been granted by Incorp to WW Premium, all in accordance with the Agreement.

9.  Having considered the evidence, I agree that this is not a case for summary judgment, and that Chan has raised triable issues to be granted leave to defend.  The following are my reasons.

Applicable legal principles

10.  The principles relevant to the grant of summary judgment are well established.  The starting point is that a plaintiff must demonstrate that the defendant has no defence, before the defendant is charged with the burden of showing that he has a credible defence (Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822).  Upon a plaintiff discharging that burden, it is then for the defendant to show that there are triable issues, or an arguable defence.  The courts have emphasized that summary judgment is only for clear cases.  True as it is that the court will not take the defence on its face value but will test it against the evidence disclosed, the Court of Appeal made it clear in Re Safe Industries Ltd [1994] HKLY 183 that the test at the summary stage is as simple as whether the defendant’s assertions are believable, and that a mini trial on factual disputes will not be conducted (Paul Y Management Ltd v Eternal Unity Development Ltd, unreported, CACV 16/2008, at para 19).

Whether summary judgment appropriate

11.  The gist of THL’s case is that Chan is in breach of the Agreement, which was for the grant of the Exclusive Right to distribute Gucci products in the designated territories (“Territory”) to WW China, and that no such Exclusive Right had been granted.  THL must show that it is clear that Chan has no arguable defence, to be entitled to judgment being entered summarily in its favour.

12.  In answer to THL’s claim, Chan relies on and has produced the Incorp Agreement as evidence that he had discharged and performed his obligations under the Agreement.  On its part, THL denies that the Incorp Agreement was effective in conferring any exclusive distribution rights at all for the sale of Gucci products in the Territory.

13.  The Incorp Agreement is not drafted in the clearest of terms.  It provides as follows:

“We Incorp Sal being legally authorized to buy and resell branded products whit all major brands of the fashion industry for rtw, shoes, accessories as well for watches and jewelry, confirm here by follow our interest in establishing with your company a distribution agreement exclusively for the following territories through your company Worldwide Premium Distribution Co. ltd.:

CHINA

SINGAPORE

THAILAND

TAIWAN

INDONESIA

As you know we have been working several brands in the Chinese territory, such us:

ALEXANDER McQUEEN

BALENCIAGA

BOTTEGA VENETA

BRIONI

DOLCE & GABBANA

GUCCI

McQ

NEIL BARRETT

STELLA McCARTNEY

SAINT LAURENT

SANTONI

SERGIO ROSSI

VERSACE

ZANOTTI

And others …

We also confirm that based on our last meetings and several conversations we are ready to establish an exclusive distribution agreement for the brand Gucci if following terms are honoured and respected.”

It then goes on to provide for certain terms and conditions as to orders for products.

14.  On behalf of THL, it was argued that it is apparent from the face of the Incorp Agreement itself that no exclusive distribution rights are granted for the Gucci products.  It was emphasized that the Incorp Agreement was signed by Incorp, which is not a company within the Gucci group or the Kering group of companies which is said to have the rights in the Gucci brand of products.

15.  In response to Chan’s affirmation in opposition to THL’s application for summary judgment, and Chan’s claim that he had already discharged his obligations under the Agreement and had secured the Exclusive Right by procuring the Incorp Agreement, THL simply asserted that Incorp was not in a position to grant the Exclusive Right, and that Incorp was not part of the Gucci or the Kering group.  In further support of such a claim, Goh produced a copy of an “activity report” for the Kering group for 2015 (“2015 Report”), to claim that the Gucci brand was owned by the Kering group.  Goh claims that Chan had never produced to THL any proof that Incorp was part of the Gucci or Kering group which Goh says owns the Gucci brand.

16.  It would have been a simple matter for THL to produce in evidence documents which show the registration of the “Gucci” trademark and the name in which the “Gucci” mark is registered in the Territory. This would have shown whether Kering, or Incorp, or another company, is the owner of the mark, and whether Incorp has any right in the “Gucci” name to grant the Exclusive Right and to sign the Agreement, as Chan asserts it does.  Such evidence of ownership has not been produced.  The 2015 Report relied upon by THL does not contain any statement as to the ownership of the Gucci trademark, nor any statement as to the entity (whether within the Gucci or Kering group or not) which has the right to sell merchandise under the Gucci name.

17.  Nor is there any evidence that Incorp is, or is not, a company within the Gucci or Kering group, apart from Goh’s bare assertion that it is not.  It is not uncommon for international conglomerates to have trademarks registered in the name of one company, and to have another company within the group to market and sell or distribute products to which the trademarks are applied.  The 2015 Report is only evidence that the Kering group markets and sells products, including merchandise sold under the Gucci brand.  The court has not been referred to any part of the 2015 Report which suggests that Incorp is not a company within its group, or that any company other than Incorp has the Exclusive Right in respect of the Gucci products.  No inference whatsoever can be drawn from the contents of the 2015 Report that Incorp has no interest, entitlement or authority to grant any rights to sell the Gucci products.

18.  As for the language used in the Incorp Agreement, it cannot be said that based merely on the terms of the Incorp Agreement, it is clear that no Exclusive Right is granted thereunder.  The Incorp Agreement states Incorp’s interest in establishing with WW Premium a distribution agreement exclusively for the Territory, and that Incorp was “ready to establish an exclusive distribution agreement for the brand Gucci”, if WW Premium should purchase a minimum quantity of products.  It is a question for trial, whether Incorp has rights in the Gucci trademark or brand name to grant the Exclusive Right, and if it has, it is then a question of construction whether the Incorp Agreement is effective in granting the Exclusive Right for the distribution of the Gucci products in the Territory, in accordance with the Agreement.

19.  Goh asserts that other companies, including Chan’s companies, have been selling Gucci products in the Territory since the date of the Incorp Agreement.  That assertion, even if established, is at most evidence of the breach of the Exclusive Right (if any) granted under the Incorp Agreement, and is not by itself evidence that Incorp has no right to grant the Exclusive Right.

20.  In relation to THL’s claim that Chan is clearly in breach of the Agreement, and in considering whether Chan has raised credible assertions as to his defence that the Incorp Agreement with WW Premium was a discharge of his obligations under the Agreement, it is relevant to note that THL, and Goh on its behalf, have made different and contradictory statements as to the circumstances of the making of the Agreement and the alleged breach thereof by Chan. 

21.  In Goh’s affirmations filed in these proceedings in support of THL’s application for summary judgment, he claimed (in paragraph 7 of his 2nd affirmation) that Chan had never mentioned to him that the Exclusive Right was to be granted by Incorp, and that it was represented to him, and he was misled into believing that the Exclusive Right was to be granted by the Gucci or the Kering group of companies.

22.  Goh and WW Premium have, on 16 January 2017, separately issued proceedings under HCA 106/2017 against Chan and another of Chan’s companies, Worldwide Agencies Company Ltd (“HCA 106/17”).  In HCA 106/17, the plaintiffs seek damages for fraudulent or reckless misrepresentation against Chan, and damages for breach of contract.  In the Statement of Claim filed in HCA 106/17, reference is made to the Agreement, and Goh claims that Chan had orally represented to him, that: (1) Chan would procure Incorp to grant the Exclusive Right to the joint venture company to be formed; (2) Incorp was affiliated with the Kering group which was the ultimate owner of the Gucci brand; and (3) Incorp had the right to cause the Exclusive Right to be granted to the joint venture company.  These facts, as pleaded by Goh in HCA 106/17, contradict his claim made in his affirmation filed in these proceedings, that it had never been mentioned to him that the Exclusive Right was to be granted by Incorp.

23.  As for the fact that the Agreement provides for the Exclusive Right to be granted to WW China, and not WW Premium to which the Incorp Agreement was issued, it is entirely credible, as Chan asserts, that Chan and Goh had agreed to use WW Premium instead of WW China as the joint venture vehicle mentioned in the Agreement.  This is supported by the facts pleaded by Goh and WW Premium in the Statement of Claim filed in HCA 106/17: that WW Premium was incorporated in June 2015, and established as a joint venture between Goh and Chan for the purpose of conducting business after the expected grant of the Exclusive Right.  WW Premium had the same shareholding structure as that proposed for WW China, held for Goh and for Chan.

24.  The Incorp Agreement issued to WW Premium was signed by Goh.  It refers in its appendix to an advance payment of €1.999 million received by Incorp, after the remittance made by THL to Incorp on 29 May 2015 of the earnest money of €2 million paid by THL under the Agreement.  The appendix was initialed by Goh.  It is unbelievable that Goh had no knowledge of the use of the earnest money, and it would have been inconceivable that Goh and THL would not have complained or raised queries that the Incorp Agreement, and the distribution rights granted thereunder, was issued to WW Premium, instead of WW China, if Goh and THL had not in fact consented to the use of WW Premium as the joint venture vehicle to which the Exclusive Right was to be granted pursuant to the Agreement.

25.  On the facts shown and on the evidence available at this stage, I consider that Chan has raised factual matters in dispute which are sufficiently credible, and which constitute reasonable grounds that a bona fide and arguable defence exists to the claims made by THL. 

Orders

26.  Accordingly, I dismiss the appeal and grant unconditional leave to Chan to defend the action.  An order nisi will be made for the costs of the appeal to be paid by THL to Chan.