SO SUK YI v. HONG KONG BUSINESS GAIN CO LTD

DCCJ 4450/2016

[2020] HKDC 695

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4450 OF 2016

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JUDGMENT

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1.  On 24 June 2015, Ms So Yuk Yi (“Ms So”) and Hong Kong Business Gain Company Limited (“Business Gain”), through its director and shareholder Mr Tse Kam Hung (“Mr Tse”), entered a letter of intent for Ms So to operate a franchise education centre in the name of “Thames Culture”. Ms So paid a sum of HK$50,000 by cheque, representing her intention money which, according to the terms of the letter of intent, was non-refundable but would form part payment to Business Gain upon execution of a formal agreement.

2.  Ms So claims that at the recommendation of Mr Tse, on 10 July 2015 she incorporated a company by the name of Glory Harvest Management Limited (“Glory Harvest”) for the purpose of the operation of the franchise education centre.  On 31 July 2015, after having allegedly consulted Mr Tse, Ms So signed as a director of Glory Harvest a preliminary tenancy agreement for a set of premises located at Shops 1 & 2, The Bonham Mansion, 63 Bonham Road, Sai Ying Pun, Hong Kong.  On 7 August 2015, Ms So and Business Gain signed a formal franchise agreement (“Franchise Agreement”).  At the same time, an entrustment agreement was also signed by the same parties to, namely, entrust the operation of the education centre to Business Gain (“Entrustment Agreement”).  On 10 August 2015, a formal tenancy agreement was entered for a 3 year tenancy at a monthly rent of HK$55,000.

3.  On 14 August 2015, Ms So gave Mr Tse two cheques in the respective sums of HK$23,000 and HK$53,000.  They represented payments for the applications for an education licence and a restaurant licence for the franchise education centre.  Then on 7 September 2015, Ms So paid two more cheques in the sums of HK$438,144 and HK$134,813 being 85% of the total renovation costs for the leased premises. Further sums were paid under the various agreements or as agreed.

4.  The franchise education centre started operation on 28 October 2015 but ceased to run on 30 April 2016 as a result of a poor business turnover.  Ms So now brings these proceedings and claims against Business Gain, in addition to interests and costs, damages for misrepresentation and for breach of the Entrustment Agreement.  For the claim of misrepresentation, the quantum of damages has been agreed at HK$569,703.  For the claim of breach of the Entrustment Agreement, Ms So seeks damages on the basis of a rescission.  Alternatively, quantum is agreed at HK$218,101.  Business Gain counterclaims for a sum of HK$68,000, representing 4 months of payments Ms So agrees to have failed to make under the Entrustment Agreement.

5.  At trial, Mr Colin Leung, counsel for Ms So, concedes that her claim is brought on 2 bases:-

(a)  that there was a fraudulent, or alternatively reckless, misrepresentation made by Business Gain in that the franchised education centre would bring a minimum monthly revenue of $112,000 and a minimum monthly net profit of $20,840 before parties entered into the various agreements;

(b)  that there was a breach of the Entrustment Agreement by Business Gain for having failed to obtain an education licence for the operation of the franchised education centre.

6.  As regards the claim formulated in paragraph 5(b), Mr Leung has made it clear that Ms So does not pursue her allegations about the improper operation of the franchised education centre under the Entrustment Agreement.

Misrepresentation

7.  There is no real dispute on the law of misrepresentation. Mr Colin Leung specifically refers me to a number of cases and authorities including Derry v Peek (1889) LR 114 App Cas 337 (HL), Lee Yuk Shing v Dianoor International Ltd (in liquidation) [2016] HKC 535, Chitty On Contracts (33 ed) Vol 1 §7-009, §7-010 and §7-016, Misrepresentation, Mistake and Non-Disclosure (4^th ed) by Cartwright §3-17 to §3-18, Esso Petroleum v Mardon [1976] QB 801, and Spice Girls Ltd v Aprillia World Service BV [2002] EWCA Civ 15.  Mr Derek Hu, counsel for the defendant, draws to my attention on the other hand to China Alarm Holdings Acquisition LLC & Another v Ing Alexander Yim Leung & Others, HCA  503 of 2012, unreported, 24 March 2016, in addition to the Lee Yuk Shing case.

8.  In the context of the claims brought by Ms So, I find the relevant principles to be succinctly summarised in §3-06 of Misrepresentation, Mistake and Non-Disclosure by Cartwright (5^th ed):-

“In all cases of misrepresentation, the claimant must include in his particulars of claim the details of the misrepresentation on which he relies, and this will require him to give sufficient indication of the alleged inaccuracy in the statement. It is therefore necessary, in analysing a claim for misrepresentation, to identify the false statement for which the defendant is responsible, and which was communicated to the representee. In most cases the falsehood and its communication to the representee can be easily identified from the defendant’s words or actions. Sometimes, however, there is some doubt about the meaning which was, or might have been, conveyed to the representee. In such cases the courts need a test to interpret the words or conduct. The test which is generally applied in the construction of the communications between the parties, when considering whether a contract has been formed, is objective, viewing the communication from the perspective of a reasonable person in the position of the recipient of it. Applied by analogy to misrepresentation, the test is whether: (a) the words or conduct in fact led the representee to believe the alleged false fact, and (b) it was reasonable for the representee to believe it from the words or conduct as he perceived them. Where there is a dispute over the meaning of a statement, this is the approach the courts should use in determining whether it is to be treated as a misrepresentation. In applying this test, the characteristics of the representee are important: ‘The court may regard a sophisticated commercial party who is told that o representations are being made to him quite differently than it would a consumer”. Where the alleged representation was express, the question is how a reasonable person in the claimant’s position would have understood the words used.”

9.  In Yang Dandan v Hong Kong Resort Company Limited, unrep, CACV 247 of 2015, 9 August 2016, the judgment in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Inc [2011] 1 Lloyd’s Rep 123 was also applied by the Court of Appeal, the relevant paragraphs of which are as follows:-

“Making a representation

81. RZB must show that RBS made to it a statement which amounts to a representation, that is to say a statement of fact upon which RBS was entitled to rely. Whether any and if so what representation was made has to be ‘judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee.’ MCI WorldCom International Inc v Primus Telecommunications Inc [2004] EWCA Civ 957, per Mance LJ, para 30. …

82. In the case of an express statement, ‘the Court has to consider what a reasonable person would have understood from the words used in the context in which they were used’: IFE Fund SA v Goldman Sachs International [2007] 1 Lloyd’s Rep 264, per Toulson J as para 50 (upheld by the Court of Appeal at [2007] 2 Lloyd’s Rep 449). The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them.

83. … In the case of an implied statement, ‘the court has to perform a similar task, except that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context’: ibid.

…

85. The essential question is whether in all the circumstances it has been impliedly represented by the defendant that there exists some state of facts different from the truth. In evaluating the effect of what was said a helpful test is whether a reasonable representee would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it: Geest plc v Fyffes plc [1999] 1 All ER (Comm) 672, at page 683 (per Colman J). …

86. It is also necessary for the statement relied on to have the character of a statement upon which the representee was intended, and was entitled, to rely. In some cases the statement in question may have been accompanied by other statements by way of qualification or explanation which would indicate to a reasonable person that the putative representor was not assuming a responsibility for the accuracy or completeness of the statement or was saying that no reliance can be placed upon it. Thus the representor may qualify what might otherwise have been an outright statement of fact by saying that it is only a statement of belief, that it may not be accurate, that he has not verified its accuracy or completeness, or that it is not to be relied on.”

10.  By an email sent through the website maintained by Business Gain, Ms So showed an interest in setting up a franchise education centre.  On 24 June 2015, Ms So and Mr Tse then met at a Starbucks Café of the I-Square shopping mall in Tsim Sha Tsui for further discussion.  It is common ground that over this meeting, Mr Tse presented what the parties now refer to as information leaflet which set out an overview of the background, objective, structure and operation of Thames Culture.  Mr Tse also explained about two types of operation of the franchise education centre, namely, a self-run mode and an entrustment mode.

11.  As pleaded, Ms So’s complaint is specifically about the representations on monthly revenue when Mr Tse showed the information leaflet in this meeting.  In the leaflet, two tables were included to set out the quantifications of income and expenses for the different modes of operation of a franchise education centre.  For the entrustment mode, which was eventually chosen by Ms So, two breakdowns were provided.  The first breakdown was premised on an overall business turnover of HK$112,000 a month.  After deducting expenditures for rent, tutors, teaching materials, miscellaneous and management fees in a total amount of HK$91,160, a final amount of HK$20,840 was stated to be the estimated net monthly profit.  The second breakdown was based on the same formulation but to raise the overall business turnover to HK$154,000 a month.  The estimated monthly profit was adjusted to HK$32,280 net of an expenditure of HK$121,720.

12.  It is the evidence of Ms So that during the meeting on 24 June 2015 she questioned whether other franchise education centres had experienced any loss or deficit under the entrustment mode.  She claims that Mr Tse answered with a resounding no and emphasised, among other things, his experience and success in the operation of the Thames Culture centres.  For the purpose of this trial it is unnecessary to go into the particulars of what Mr Tse had said with regard to the benefits of the entrustment mode or its manner of operation save to mention, so Ms So asserts, that Mr Tse also talked about HK$120,000 being the lowest monthly turnover from the centres entrusted to him and about a minimum period of 6 to 9 months to achieve a break even for the centre at the meeting.

13.  Ms So says that she was deeply persuaded by Mr Tse and proceeded to sign the letter of intent and to make the HK$50,000 payment towards the end of the meeting.  Before this, Mr Tse asked Ms So the maximum amount of risk she could bear for the franchise education centre.  Ms So, according to her, answered that HK$1,000,000 would be the maximum limit.

14.  Under cross examination, Ms So denies the suggestion that the leaflet presented by Mr Tse in the meeting was only to provide an introduction to the business operation or the background of the Thames Culture learning centres.  Ms So maintains that the leaflet was part of the sales pitch by Mr Tse who spoke of many other matters, which were not recorded in the leaflet, in order to close the deal.  Mr Derek Hu then points out to Ms So about a disclaimer that was printed at three of the pages of the leaflet, below the tables of quantifications respectively showing the operation budget and income estimates for the two different modes of the franchise education centre. The disclaimer states as follows:-

“（面責聲明）：本公司及其資訊提供者發放之資料及分析內容僅供參考，本公司及其資訊提供者不會對其內容的準確性或因而可能招致的任何損失承擔任何責任。加盟者應留意過去的成功分析並不代表將來的表現。”

15.  When shown the disclaimer, Ms So says that she did not notice it on the pages at the time and claims that those shown at trial may not be the same pages shown in the meeting.  It is then put by Mr Derek Hu to Ms So that she did see the disclaimer in the meeting as she also mentioned about it at paragraph 11 of her witness statement.  Ms So once again disagrees and explains that she was in her witness statement referring to a disclaimer in the letter of intent.  According to Ms Tse, a disclaimer was contained in clause 3 which related to the payment of the HK$50,000.  As she describes in the witness statement, she made the payment after Mr Tse confirmed that it would form part of the joining fee on signing of a formal agreement.  However, when one reads the letter of intent, Clause 3 provides as follows:-

“「申請人」須即時繳交加盟意向金港幣 $50,000元，此$50,000將在任何情況下不獲退還。而當「申請人」正式簽署特許經營合約時，此加盟意向金則會全數撥作部分加盟費。”

16.  Unlike what Ms So claims, Mr Derek Hu rightly suggested that there is no disclaimer in clause 3 or any other part of the letter of intent.  Ms So concedes. It is therefore inexplicable why Ms So mentions about a disclaimer in her witness statement or at trial and Mr Colin Leung has not re-examined on this point.  Mr Derek Hu further refers to clause 2 of the letter of intent which provides:-

“「申請人」清楚了解「該業務」的業務內容，及特許經營「該業務」所涉及的各項收費及加盟條件和相關的投資風險。”

17.  Ms So had studied the letter of intent carefully before she signed on it.  She agrees henceforth with Mr Derek Hu that by virtue of clause 2 she knew the nature of the business and the risk carried with her investment.  Ms So disagrees nevertheless with the suggestion by Mr Derek Hu that, as it follows from clause 2, business profit was not guaranteed.  She claims that in the meeting Mr Tse described the risk of loss to be very low and the business she was about to invest in would be stable and safe.  That being the case, Ms So confirms under cross examination that she had considered a possible loss of HK$1,000,000 which was the maximum sum she told Mr Tse she could afford to lose.

18.  Mr Derek Hu then turns to the tables of quantification in the leaflet.  It is the case for Mr Tse that the sums provided in the tables were estimates and were for reference only.  Mr Derek Hu cites as an example the monthly rent of HK$30,000 being a budget, which Ms So agrees, because the actual monthly rent incurred was HK$55,000.  As a result, as Mr Derek Hu suggests, the estimated monthly net profit of HK$20,840 for the operation of a franchise education centre under the entrustment mode would be consumed in its entirety by the increase in the monthly rent.  This would accordingly produce a loss for the business.  Ms So disagrees that any of the items in the table, including the monthly net profit of HK$20,840, was for reference or an estimate.  On re-examination, Ms So further explains that she had asked Mr Tse at the meeting about the figures in the tables.  Mr Tse answered that they were actual figures obtained from existing or previous centres.  Ms So was hence convinced at the time that, for example, the monthly net profit of HK$20,840 represented an actual figure to be expected from the business under the entrustment mode.

19.  On this matter, I do take note that the three tables of quantification for opening expenses and for income under the two different modes of operation have been respectively titled in the leaflet in Chinese as開業預算and收入預算, which, on the face, shows a budgeting exercise done by Mr Tse.

20.  On the page following these tables is a list of steps for joining Thames Culture.  Item 3 on the list states that the interested party could sign a letter of intent and pay a sum of HK$50,000 as incentive money, which Ms So had done on 24 June 2015.  Item 4 carries on to state that the letter of intent had a 12 month effective period within which the application to join could be withdrawn, and on termination the paid fee would not be returned but spent as administrative expenses.  The last part of item 4 provides an extension of the effective period for the letter of intent for a further 12 months if the premises for the franchise education centre could not be confirmed during the first 12 month period.

21.  In clause 6 of the letter of intent, the effective period is stated to be between 24 June 2015 and 23 June 2016.  This allowed, as Ms So agrees under cross examination, sufficient time for market research to be conducted before committing to operating the franchise education centre.  When asked by Mr Derek Hu what market research had been done, Ms So said that she visited the district nearby Bonham Road to find out whether there would be a sufficient customer base to achieve the figures represented by Mr Tse.  Ms So also looked at the business performances of competitors.  This exercise consumed the rest of June and most of July 2015.  During this time, Ms So confirms that she had not decided on location until 31 July 2015 when a lease was signed.  Then on 7 August 2015 Ms So entered into the Franchise and Entrustment Agreements.

22.  Whether under the Franchise or Entrustment Agreement, Mr Derek Hu puts to Ms So that there is no mention anywhere in these documents about a promise on business revenue or the figure HK$112,000.  Ms So agrees but she did not know, so she says, she had a right to include such a term at the time.  Be that as it may, the claim of misrepresentation brought by Ms So is based solely on the leaflet in question, more specifically the table of income under the entrustment mode.  She repeats her assertion that the sum of HK$20,840 was represented by Mr Tse to be the minimum monthly net profit obtainable from the franchise education centre.

23.  For Mr Tse, it is his evidence that he specifically told Ms So, after explaining to her in the meeting on 24 June 2015 about the different modes of operation of the franchise education centre, that the HK$112,000 was only a reference figure under the entrustment mode.  When he talked about this, Mr Tse used a laptop to show how that figure of HK$112,000 was achievable by accepting 18 students a day to be taught by one English and one Mandarin teacher charging fees respectively at HK$250 and HK$230 per student per class.  Mr Tse also told Ms So that neither the number of students nor the revenue for the business was guaranteed.  On the contrary he asked her whether she was prepared to accept a minimum period of 6 to 9 months when the business could be receiving no profit or could even sustain loss.  According to Mr Tse, Ms So replied that she understood the risks but she had assets without mortgage liabilities and saw great potential in the education business.

24.  Then Mr Tse advised Ms So to operate the franchise education centre under a limited company.  He produced the letter of intent and proceeded to explain its contents including the payment of the HK$50,000 joining fee.  Mr Tse recalls that he had asked Ms So three to four times to take some time to consider the deal, however Ms So decided to sign on the letter of intent immediately at the meeting.  Ms So told Mr Tse that she did not need the time, and when asked why a decision to join Ms So gave a reason that the joining fee for Thames Culture was much lower than other brands.  Before parties parted, Mr Tse invited Ms So to retain a contractor for renovation of her own choice and also a consultant for the application for an education licence for the franchise education centre. Ms So wished to discuss those matters at a later date.

25.  Further discussions ensued after the meeting on 24 June 2015 from which Mr Tse learned that Ms So had plans to open a tea shop next to the franchise education centre.  In response, Mr Tse offered to help Ms So with the renovation and application for a food shop licence for this side business.

26.  By the time when Ms So decided to join Thames Culture and set up a franchise education centre, Mr Tse had the experience of operating 5 centres at various districts in Hong Kong.  Under cross examination, Mr Tse explains that the first centre was set up in North Point which held a certificate of registration of a school issued by the Education Bureau.  The first centre ceased business some time later, but after Ms So had set up the franchise education centre in question, because of an increase in monthly rent.  The second centre was in Tai Kwok Tsui.  This was an unregistered franchise education centre which had ceased to operate before Ms So became involved.  Mr Tse says he does not know why it closed.  The third centre opened in Tuen Mun. Like the North Point centre but unregistered, the Tuen Mun centre also closed some time after Ms So had set up a centre of her own.  Again, Mr Tse claims that the cessation of the third centre was because of an increase in monthly rent but denies that it was to cut loss.  The fourth centre was in Lai Chi Kok. This was another registered franchise education centre which operated under the entrustment mode.  According to Mr Tse, the Lai Chi Kok centre managed only to break even in revenue and was closed when the investor fell terminally ill.  The fifth centre was located in Tseung Kwan O.  The Tseung Kwan O centre had a certificate of provisional registration and operated under the entrustment mode.  Albeit business broke even for some of the months, the fifth centre was sold to a third person for HK$700,000.

27.  Apart from those five centres, Mr Tse adds that there was formerly one more in Sham Shui Po, which closed down some 19 years ago, and another in Whompoa which was not put into operation despite the signing of a franchise agreement.

28.  At the meeting on 24 June 2015, Mr Tse showed the leaflet in question to Ms So to, so he claims, introduce the Thames Culture brand of education centres and to promote the franchising operations.  Mr Colin Leung then refers to the second page of the leaflet where the following was written:-

“Thames Culture 創辦人Eric Tse，自2002年開始在深水埗開辦第一間教育中心。於香港不同地區設立多間不同定位，具規模的教育中心均取得理想成績。”

29.  Mr Colin Leung criticises that the statement was misleading as on its face suggested that the centres set up at different districts were all performing well when apparently this was not the case.  Mr Tse disagrees.  His explanation is that the word均meant that the Thames Culture education centres had on average been profitable and so the statement was a correct statement.

30.  Promotion was one of the matters advocated by Mr Tse in the meeting on 24 June 2015.  Under cross examination, Mr Tse describes that there had been namely two kinds of activities carried out to promote the Thames Culture brand. One was the distribution of a single page flyer through an education magazine made available in a Tseung Kwan O shopping centre.  The other was the hosting of game booths at the Dragon Centre in Sham Shui Po.  After the franchise education centre in Bonham Road came into operation, for the months of October and November 2015 Mr Tse says that promotional flyers were handed out through the engagement of a contractor called Hadil Workshop.  Balloons and candies were also given to visitors to the centre in Halloween.

31.  On the twelfth page of the leaflet is listed 9 types of business promotion methods for the franchise education centres.  It is put by Mr Colin Leung that the representations on promotion were inaccurate because the majority of them, such as minibus advertising, television shows, website hosting, Facebook and YouTube channels, had not taken place.  Mr Tse disagrees. He explains that those were the promotion strategies planned at the time.

32.  As for the figure of HK$112,000, under cross examination Mr Tse says the quantum was not based on actual revenue figures because of the confidential nature of this type of information from other centres of the group.  His calculations, however, as Mr Tse further answers, were real in the sense that the figure in his experience was achievable.  When he met Ms So on 24 June 2015, Mr Tse typed into a blank spreadsheet in the laptop the different data on the hypothesis described above.  He then showed to Ms So that the results of the spreadsheet supported the quantification of HK$112,000.

33.  Mr Colin Leung then refers to an email dated 28 January 2016 in which Mr Tse made an assurance to Ms So about an increase in the intake of students for February 2016.  On 2 February 2016, Mr Tse wrote an email to ask Ms So, apparently in response to an earlier remark by her, whether she wished to completely cease operation of the franchise education centre, cease accepting new students, or to ask the teachers and students to stop returning to the centre.  Ms So answered yes to all three questions and further stated that she was sustaining a loss of HK$80,000 a month.  Three days later on 5 February 2016, Mr Tse sent a spreadsheet named planning.xlsx by which he projected a median gross income of HK$35,000 for the month of March 2016, HK$60,000 for the month of April 2016, HK$87,500 for the month of May 2016, and HK$130,000 for the month of June 2016.  In the next column of the spreadsheet, Mr Tse listed a monthly deficit of HK$23,000 for each of those months should the franchise education centre cease to operate.

34.  When asked by Mr Colin Leung how the projected figures came about, Mr Tse says that they were prepared on the request of Ms So.  He therefore provided estimates by increasing the number of students for each month and asked Ms So whether the increase was possible.  Mr Tse agrees that the estimates were not obtained from past statistics as there was none for this particular franchise education centre.  Mr Tse did not make a similar projection in the meeting on 24 June 2015.  Mr Colin Leung suggested that the unfounded estimates were to convince Ms So to continue operate the education centre, because in so doing Mr Tse stood to earn franchise and entrustment fees.  Mr Tse denies the suggestion.

35.  Before finishing with his cross examination, Mr Colin Leung asks Mr Tse about how a sum of HK$30,000 came to be applied as monthly rental in the table of income budget in the leaflet.  Mr Tse clarifies that the estimate of HK$30,000 was from experience as the other Thames Culture education centres were paying monthly rent between HK$20,000 and HK$50,000.  Mr Colin Leung then proceeds to put the case for Ms So, in so far as the claim of misrepresentation is concerned, that Mr Tse had made misrepresentations to Ms So about a minimum monthly revenue of HK$112,000 and about a 6 to 9 month break even period for the business of the franchise education centre.  It is to be noted that Mr Colin Leung has chosen only to put a general case with which Mr Tse disagrees.

36.  The complaint of Ms So rests solely on an income budget table in the leaflet by which she was given to belief that a minimum monthly revenue of HK$112,000 or a minimum monthly profit of HK$20,840 could be derived from her investment.  The burden is on Ms So to prove that such a representation had been made and if so that the representation was untrue.  Whether Ms So is entitled to rely on that representation, put briefly, is to be judged objectively by looking at how a reasonable person in the position as Ms So would have understood the words used.  The nature and content of the statement, the context in which the statement was made, the characteristics of the maker and recipient of that statement, and the relationship between the two are some of the factors to be considered.

37.  I have no hesitation to reject the case of Ms So as being inherently improbable.  Firstly, on the face of the leaflet there is no express term of a promise on revenue or profit.  Instead, at three different pages under the budget tables was a disclaimer stating that the information was for reference only and the provider of that information accepted no liability for its accuracy or for any loss arising from it.  Ms So, whilst agreeing that she sees the disclaimer at the three different pages when the leaflet is presented to her at trial, appears to suggest that she did not notice it at the meeting on 24 June 2015.  I find this assertion to be unbelievable.  It is not her case that she did not understand the disclaimer or Mr Tse had dishonestly added the disclaimer into the leaflet at some point in time after the meeting in June. Such a case has not been pleaded nor put by Mr Colin Leung to Mr Tse under cross examination.  On the contrary, in her Amended Reply Ms So pleads that the disclaimer was represented by Mr Tse to be some standard advertising wordings and what was said by him orally at the meeting superseded the disclaimer.  By necessary implication, Ms So must have noticed about the disclaimer in the leaflet as it was drawn to her attention when, so she says, Mr Tse asked her to ignore it.  For the latter part, however, Mr Colin Leung has not specifically cross examined Mr Tse on the point in the manner as pleaded.

38.  Secondly, clause 2 of the letter of intent provides that the applicant understood, amongst other things, the risks of investment.  Ms So had read the letter before she signed on it.  She does not dispute the meaning of clause 2 but her evidence is that Mr Tse assured her the investment was safe and the risk of loss was a low one.

39.  This is entirely different from saying that Mr Tse made a promise of revenue or profit.  As a matter of fact, Ms So was at the time considering an investment into a new business.  She was not looking to purchase an existing franchise education centre as Mr Tse describes to sometimes take place from time to time.  In the meeting on 24 June 2015, Ms So met Mr Tse for the first time in person.  It cannot be said that she knew either Mr Tse or the Thames Culture brand well.  For her investment, nothing was certain such as the location of the centre, the market trend for a particular district, the availability of teaching staff, the curriculum offered by the centre and so on. Mr Tse then asked and Ms So estimated that she was able to afford a maximum loss of HK$1,000,000.  The letter of intent which she signed in the meeting also allows a 12 month period before Ms  So was required to enter into a formal agreement.  Thereafter, Ms So conducted some market research on her own.

40.  The evidence points overwhelmingly at a conclusion that Ms So knew and elected to make an investment which carried a real risk.  It is also to be noted that Ms So signed up to run the centre in question under the entrustment mode not the self-run mode.  Given the uncertainty at the time in almost every aspect of the business to be operated, had there been an assurance of revenue or profit, if not any loss curbed, by Mr Tse as alleged, such an assurance would logically find its way into the Franchise or Entrustment Agreement.  This is not the case here.  By entrusting the operation of the centre to Mr Tse, it is unbelievable for Ms So to say that she had not considered about reducing such an assurance in writing or in some way protect her position by virtue of what Mr Tse was said to have promised.  The fact that Ms So chose instead to conduct market research by herself notwithstanding that the centre would be run by Mr Tse is indicative of both her awareness of an investment risk and an absence of an assurance by Mr Tse.  To take matters further, by 1 February 2016, Ms So, as she clarifies under cross examination, allowed her business to accumulate a deficit of HK$1,500,000 since the franchise education centre opened in October 2015.  This is a substantial amount as it represents a 50% increase in the budget of loss originally planned by her.  Had there been a promise of no more than a minimum income of HK$20,840 a month, it is inexplicable for Ms So to still have agreed to incur such a loss that did not appear to justify the promised revenue.  I find it more probable that Ms So decidedly went on a business venture in the hope for a much higher return.

41.  I accept the evidence of Mr Tse that at the meeting on 24 June 2015 he did not make an assurance of revenue or profit as alleged by Ms So.  I also accept his evidence that no promise was said about her investment breaking even in 6 to 9 months of time but rather Ms So was warned about a continuous loss for that period.  Clearly for the meeting on 24 June 2015 Mr Tse was merely projecting from experience when he contemplated the various tables in the leaflet.  At that time Mr Tse could only have provided financial budgets, as the titles of those tables suggest, since he, or even Ms So, did not even know where the franchise education centre would be located. While Mr Tse would have portrayed the Thames Culture brand of education centres in the best light, such as to reveal a possible monthly revenue of HK$112,000, this does not, as I find, transform anything said in the meeting into a commitment of income, or a certain income, when nothing about the intended centre could be said to have been committed at that point in time.

42.  Quite some time has been spent by Mr Colin Leung on matters that occurred after the meeting on 24 June 2015.  I find those matters to have little relevance to the question whether Mr Tse had made a fraudulent or reckless representation as alleged.  Since Mr Tse, as I have found, did not make a verbal assurance to Ms So as suggested, given the disclaimer in the leaflet and clause 2 of the letter of intent, in my view no reasonable person would understand any of the budget tables in the leaflet to be a statement of an existing fact, an undertaking that the information was correct or something that would necessarily materialise.

43.  In the closing submissions, Mr Colin Leung seeks to rely on s  4 of the Misrepresentation Ordinance, Cap 284 and s 3(1) of the Control of Exemption Clauses Ordinance, Cap 71 to argue that the disclaimer in the leaflet in question is of no effect and therefore does not protect Mr Tse from a liability for misrepresentation. Mr Colin Leung specifically draws my attention to Li Cho Kwan v Oliveiro Lana and Another, unrep, HCA  505 of 2012, 23 March 2016.

44.  In support, Mr Colin Leung raises 5 points as follow:-

(a)  that Ms So, in her evidence, did not pay attention to the presence of the disclaimer because the font was small when viewed on a computer;

(b)  the words過去的成功分析used in the disclaimer meant that the budget tables were based on real statistics which contradicted the evidence of Mr Tse when he says that his calculations were hypothetical;

(c)  that the purpose of the leaflet was to introduce the franchise and entrustment business to potential customers;

(d)  the information on the leaflet was intended to be relied on by potential customers such as Ms So and to persuade them to join the business;

(e)  since Ms So had elected to run her franchise business under the entrustment mode, she was more liked to have relied on the information from the budget tables.

45.  I am not persuaded by these submissions.  For the reasons I have already given above, the circumstances of this case is clearly different from the Li Cho Kwan case.  The representations by Mr Tse were made at a time when nothing about the intended franchise education centre was in place.  There is nothing unreasonable for a disclaimer to be included to make it known to the reader, in this case Ms So, that the information provided was not definitive.

46.  There was no misunderstanding on the part of Ms So that what Mr Tse might have said in the meeting on 24 June 2015 would be qualified when she was referred to the disclaimer in the leaflet or when clause 2 was included in the letter of intent which she signed.  I find that the information in the leaflet did not form part of the Franchise or Entrustment Agreement and that Ms So did not rely on those information when she decided to enter into the formal agreements.  When the franchise education centre later turned out to be a losing business, this was no more than a bad investment decision made by her.  It may that the centre was run poorly by Mr Tse as its operation had been entrusted to him, but this is not the complaint here in these proceedings.

47.  Accordingly, I find that the claim of misrepresentation must fail.

Education Licence

48.  By education licence, both parties are referring to the application for a certificate of registration for the franchise education centre from the Education Bureau.  There is no dispute that on a successful application, pursuant to s 3 of the Education Ordinance, Cap 279, the size of a class for a registered school can be expanded to more than 20 students a day or more than 8 students at one time.

49.  There is also no dispute that on 15 August 2015 Ms So paid to Mr Tse a sum of HK$23,000 for the purpose of obtaining an education licence for the franchise education centre and Mr Tse proceeded with making one such application.  The complaint by Ms So is that Mr Tse failed to see through the application and obtain the required certificate.  That said, however, the basis on which Ms So formulates her claim is not entirely clear.

50.  In the re-amended statement of claim, Ms So pleads her case as follows:-

(a)  at paragraph 4,

“In the end of July 2015, there was a telephone conversation between the Plaintiff and Tse. During the telephone conversation, Tse told the Plaintiff that the application for an education licence (教育牌) could be commenced immediately after signing all agreements between them.”

(b)  at paragraph 4A,

“By an email dated 3^rd August 2015, Tse sent the Plaintiff with a piece of information under the subject of “operation schedule v.2 (開業時間表 v.2) describing the anticipation of the commencement of the education centre by Tse, together with the schedule of payment to him in the course of setting up the education centre (including the fee of granting an education licence (教育出牌費用) to be paid on or before 14^th August 2015).”

(c)  at paragraph 4B,

“After signing all agreements, Tse assured the Plaintiff in another telephone conversation that he had made an application for obtaining the education licence to the Education Bureau because it was his responsibility under the entrustment mode, and that the education licence would be issued after payment once the Plaintiff had settled the fee based upon the conversations and/or messages between the Plaintiff and Tse.”

(d)  at paragraph 14,

“… Also, the Plaintiff duly paid the Defendant a sum of HK$23,000.00 for the fee of education licence as indicated in paragraph 4 above by means of cheques issued in favour of the Defendant on 14^th August 2015.”

(e)  at paragraph 15,

“Wrongfully and in breach of the Entrustment Agreement, the education licence had not been obtained until the end of April 2016 due to improper operation of the education centre…”

51.  In the re-amended defence, Mr Tse admits the first telephone conservation about the commencement of an application for an education licence after the signing of the formal agreements.  He denies having made an assurance in the second telephone conversation about the education licence would be issued upon payment of the relevant fees by Ms So after she had signed the formal agreements.  Mr Tse avers that Ms So was made fully aware about a minimum period of 6 to 9 months for obtaining a provisional licence which in turn depended on the giving of approvals by different governmental departments. A consultant was engaged for this purpose on 15 August 2015.  Mr Tse pleads that by way of a separate verbal agreement he agreed to take reasonable steps for the application of an education licence.  Specifically, Ms Tse denies that the agreement to apply for an education licence formed part of the Entrustment Agreement.

52.  Ms So disagrees having been told about a 6 to 9 month application time, the involvement of getting permissions from third parties or about the appointment by Mr Tse of a consultant.  I find these assertions to be unconvincing in the first place but be that as it may on the question of liability, in the amended reply the following is pleaded: -

(a)  at paragraph 6A(a)(1),

“After receiving payment of monies … from the Plaintiff on or around 14 August 2015, it was Tse who would be responsible for commencement of obtaining an education licence on behalf of the Plaintiff under the entrustment mode. The Plaintiff repeats Paragraphs 4, 4A and 4B of the RASOC.”

(b)  at paragraph 6A(a)(2),

“In particular, the Plaintiff avers that during another telephone conversation between the Plaintiff and Tse, Tse specifically reassured the Plaintiff that the education licence would be issued smoothly without any problem or obstruction after payment of HK$23,00 … made to the Plaintiff. Subsequently, following the advice given by Tse over the telephone and/or face-to-face conversations, the Plaintiff effected payment on 14^th August 2015. The Plaintiff reiterates that the reassurance of Tse had clearly made a Representation to the Plaintiff. The Plaintiff repeats Paragraphs 4, 4A and 4B of the RASOC.”

(c)  at paragraph 6A(e)(1),

“Prior to signing the Entrustment Agreement on or about 7^th August 2015, Tse represented to the Plaintiff that he would be responsible for dealing with the management and daily operation of the education centre, including all matters which are necessary for the setting up of the education centre, such as renovation works and the application for education licence.”

(d)  at paragraph 6A(e)(3),

“Once the Plaintiff had signed the Entrustment Agreement on 7^th August 2015 and paid the application fee for obtaining education licence on 14^th August 2015, it would be Tse’s responsibility for arranging of filing the application of the education licence on behalf of the Plaintiff.”

(e)  at paragraph 7(a),

“… The Plaintiff avers that Tse told that if the Plaintiff chose entrustment mode, Tse would be fully responsible for preparing and operating before and after commencement of such business on her behalf, such as applying for education licence…”

(f)  at paragraph 11(b),

“Save it is admitted that the Plaintiff was informed by Tse through whatsapp on around 8 September 2016 that the Fire Services Department would conduct an inspection at the education premises, Sub-paragraph 14(c) to (e) are denied. In particular, the Plaintiff strongly denied that she expressly told Tse that it was no longer necessary to obtain the education licence. The Plaintiff alleged that she did not need Tse to follow up the education licence.”

(g)  Finally, at paragraph 12(b)(1),

“It is correct that an education centre can be operated without the need for an education licence if there are less than 20 students during one (1) day or [e]ight (8) or more students at any one time…”

53.  Ms So is bound by her pleaded case.  To be fair, in his closing submissions Mr Colin Leung pursues her claim on the basis that there was a breach of the Entrustment Agreement on the part of Mr Tse for failing to obtain the education licence.

54.  The difficulty with this particular claim is this.  Firstly, the Entrustment Agreement does not contain any specific provision relating to the application, let alone the obtaining, of an education licence.  In fact, clause 1 of the Entrustment Agreement defines the duty of Glory Harvest under the entrustment mode.  There are altogether 12 items listed none of which relate to the application of an education licence.  The Entrustment Agreement is also silent on the payment of fees for such an application.  On the contrary, as pointed out by Mr Derek Hu, clause 14(1) of the Franchise Agreement places a positive duty on Ms So to comply with all procedures required by law in the operation of the franchise education centre.  Under cross examination, Mr Derek Hu puts to Ms So that clause 14(1) included the laws and procedures relating to the application of an education licence. Ms So disagrees without further explanation.  I take note that Mr Colin Leung has not re-examined on the point, and neither is any specific submission made about it.

55.  There is no dispute that Mr Tse orally agreed to apply for an education licence on behalf of Ms So.  Mr Derek Hu argues that this is a separate oral agreement and there is no specific pleading by Ms So of the oral agreement.

56.  Mr Colin Leung argues that the obtaining, as opposed to merely making an application without completing the process, of an education licence is part and partial of the Entrustment Agreement.  Ms So pleads in support of her case a number of oral assurances by Mr Tse who disagrees having made them.  The position taken by Ms So, as shown in paragraphs 6A(e)(i) and 7(a) of the amended reply, is that the application for an education licence forms part of the “management and daily operation of the education centre” and the responsibility of Mr Tse in “preparing and operating before and after commencement of” the business on her behalf.

57.  Taking the case of Ms So to the highest, even if the application for, or the obtaining of, the education licence did form part of the Entrustment Agreement, Mr Colin Leung has conceded at the start of the trial that Ms So does not seek to complain about the way how the franchise education centre was being operated by Mr Tse.  Put another way, there is no question of poor operation of the centre which would, according to her pleaded case, include the obtaining of an education licence.  Mr Colin Leung further argues that an education licence is, and I quote, “essential for the survival of the Education Centre”.  I do not accept that submission.  At paragraph 12(b)(1) of the amended reply, Ms So admits that the education centre could be operated without an education licence.

58.  On the basis that there is no fault in the operation of the franchise education centre, it must follow that no fault can be said about the application process for the education licence.  The failure, as Ms So puts it, to obtain an education licence is neither here nor there as the centre was unable to attract sufficient business in the first place.  This, I find, was why Ms So decided on 8 September 2016 not to follow up with the application.

59.  Accordingly, the claim by Ms So about the education licence must also fail.

Conclusion

60.  Mr Tse counterclaims a sum of HK$68,000 being four months of payment between May and August 2016 under the Entrustment Agreement.  Ms So does not dispute this figure.

61.  It is therefore ordered that:-

(a)  the plaintiff’s claim be dismissed and there be judgment in favour of the defendant on his counterclaim in the sum of HK$68,000 at the half judgment rate from 16 May 2017 until the date hereof and thereafter at full judgment rate until payment;

(b)  save such costs already ordered, costs of this action, including all costs reserved if any, be to the defendant to be taxed if not agreed; and

(c)  there be certificate for counsel for the trial of this action.