LEUNG YUK LIN t/a KING'S GLORY EDUCATIONAL CENTRE AND OTHERS v. KARSON OTEN FAN, KARNO

CACV 183/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 183 OF 2009

(ON APPEAL FROM HCA NOS. 900 AND 945 OF 2006)

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(Consolidated by the order of the Honourable Mr. Justice A. Cheung dated
8 August 2006)

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REASONS  FOR  JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge To given on 15 July 2009.  The action was a consolidated action for breach of contract.  The judge gave judgment in favour of the plaintiffs against the defendant in the sum of $8,879,054.  He dismissed the defendant’s counterclaim save for the part, namely $2,650,661, in respect of which the defendant had already obtained judgment.  At the conclusion of the hearing of this appeal, the appeal was dismissed with reasons to be given in writing.

Background

2.  The plaintiffs operate 2 conventional day schools and a group of 11 tutorial schools under the name King’s Glory Education Centre (“KG”).  It suffices to say that tutorial schools are particularly popular in Hong Kong.  Furthermore the tutors in the tutorial schools often acquire significant public reputations which are enhanced by a considerable degree of advertising.  It appears that in about 1998 the defendant started his own day and tutorial school.  In early 2002 the plaintiffs invited the defendant to join their organisation as a tutor.  The parties entered what was termed a Cooperation Agreement dated 31 March 2002.  That agreement was to last for three years from 1 July 2002 to 30 June 2005.  The defendant commenced teaching at the plaintiffs’ tutorial schools and his own school ceased operation.  At that stage the defendant was made aware of the Teachers’ Guidelines and in March the following year the defendant attended a meeting in respect of amendments which were to be made to the Teachers’ Guidelines; he signed the 14 March 2003 version of them.  In July 2003 the defendant executed what has been termed the 2003 Cooperation Agreement.  At that stage he had already signed the “Notice on submission of the notes.”  The defendant disputed having signed the 2003 Cooperation Agreement and a great deal of evidence and argument appears to have been devoted towards ascertaining whether he had signed such a document.  However, the judge came to the clear conclusion that he had, indeed, signed it and there has been no appeal in respect of that.

3.  It is convenient at this stage to set out the terms of the Cooperation Agreement and that read as follows:

“   (Letter Head of King’s Glory Educational Centre)

Cooperation Agreement

This is a formal contract made between King’s Glory Educational Centre/Ding Wa Development Limited/King’s Glory Education International Limited/King’s Glory Educational Holdings Limited/King’s Glory Educational Information Technology Limited/King’s Glory Education Investment Limited/King’s Glory Education Far East Limited/King’s Glory Education Resources Management Limited (hereinafter referred to as Party A) and Mr. Fan Karno (teacher’s full name in Chinese) (hereinafter referred to as Party B), both Parties agree to abide by the following terms and conditions:

1.    Effective date of contract: From 1^st July 2003 to 30^th June 2008 (the contract shall have a term of 5 years)

2.    Termination of contract: Notice period for both Parties is 2 years, otherwise it will be considered as a breach of contract.

3.    Breach of contract: Party B cannot teach in other tutorial schools within the subsequent year in any form, including both live teaching and videotape or VCD teaching.

4.    During the effective period of the contract, Party B must provide tutorial services for courses that have been arranged and perform the teachers’ guidelines.  (Party B) also undertakes to teach only at the campuses that belong to Party A.

Both Parties clearly understand the above content and agree to sign for confirmation.  Both Parties shall retain a copy of the contract for future reference.

(sd.)(illegible)	(sd.)(illegible) (Chop)
Teacher’s Name: Mr. Fan Karno	Party A’s Representative
ID number: K523466(2)	Miss Leung Yuk Lin
Date: 7th July 2003”

4.  In contrast, the Teachers’ Guidelines are extensive.  They range from matters dealing with the course contents and video classes to matters relating to self-promotion of teachers and the submission of notes.  For the purposes of this appeal the important provision is contained under paragraph (3) Points to note for teachers:

“v.    Student’s information

-Students’ information is the property of the school.  Teachers and staff must not steal or collect students’ personal information without the school’s permission.  The school reserves the rights to take legal action against those in violation of this.”

5.  Towards the end of October 2005 the plaintiffs became aware that the defendant had been responsible for the publication of advertisements making what would appear to be extravagant claims about the success of the defendant’s teaching.  In October of that year the plaintiffs issued a warning letter to the defendant complaining of breaches of the Teachers’ Guidelines not merely in relation to the advertisements but including other matters as well.  Over the course of time other warning letters were issued.

6.  Matters then came to a head in April 2006 when it was discovered that the defendant was providing on-line teaching on a website www.my100fun.com.  The name of the website is a linguistic pun since it indicates that there would be a 100% mark achieved.  In addition the plaintiffs discovered that the defendant’s assistants were obtaining details of students’ personal information.  Despite the fact that several warnings were given to the defendant, the assistants continued to obtain personal data relating to students and, indeed, blank forms were found in classrooms after classes held by the defendant’s assistants were over.  On 24 April 2006 solicitors acting on behalf of the plaintiffs wrote to the defendant accepting the defendant’s repudiation of the Cooperation Agreement and terminating the contract.  The writ in the action was issued on the following day.

The trial of the action

7.  At the trial of the action the plaintiffs complained of a number of breaches of the Cooperation Agreement and the Teachers’ Guidelines.  In respect of some of those, the judge held that the defendant had been in breach of contract but, for various reasons, the breach was spent.  In respect of others, the judge held that the breaches were trivial or not serious.  The judge, however, held that 3 of the breaches were serious.  Amongst those, two are particularly important.  The first was the obtaining of the personal data of students and the other was the on-line teaching.

8.  In respect of the obtaining of personal data, the importance was clear in that the defendant was likely to use that data in order to enrol the students in courses of his own which would have nothing to do with the plaintiffs.  The judge said at paragraph 182 of the judgment:

“I accept KG’s evidence and reject Fan’s evidence.  TG3(v) made it amply clear that students’ personal data were private property of KG.  The tutorial school business is a very competitive business.  As explained by PW1, students tend to develop a close bond with their tutors.  They tend to follow their tutors wherever the tutors go.  The goodwill created by the name and location of the tutorial school is nothing to compare with the personal bond between the student and the tutor.  Even if a tutor leaves the school, the school would not wish to see him armed with contact details of students so that he could entice an exodus.  Therefore, students’ personal data were jealously guarded.  The various incidents in April 2006 precisely demonstrated the seriousness in which KG from senior management down to front line level understood the confidential nature of students’ personal data.  It lies ill in Fan’s mouth to argue that there was a usual practice for the students’ personal data to be provided casually by KG’s front line staff or to be collected at will by the tutors.”

9.  In respect of on-line teaching, the importance was also clear in that without this undertaking to conduct teaching exclusively at the plaintiffs’ premises, the defendant could teach in other tutorial schools, or even in a competing business established by himself.  The judge said at paragraphs 221 of the judgment:

“This undertaking is of particular importance for the business of tutorial schools for the simple reason that students are attached to the tutors of their choice.  Students join a particular tutorial school because of the tutor rather than the name or goodwill of the tutorial school or its location.  The success of a tutorial school is dependent on its ability to maintain a team of popular tutors.  KG must have intended that undertaking to be an important term.  Being a star tutor in such a business, Fan must have realised the importance KG attached to his undertaking and agreed to make it an important term of the 2003 Agreement.”

10.  The judge also considered that the importance of the undertaking was reflected in clause 3 which expressly preserved KG’s monopoly for one year in case of premature termination of the agreement.

11.  After reviewing the legal principles, the judge set out the applicable test at paragraph 218:

“To determine whether a contractual term was intended by the parties to be a condition, the court has to look at all the surrounding circumstances when the contract was made, including the importance which the parties attached to the particular term, the general nature of the contract, the object which the contract was intended to achieve and decide whether the particular term conveys to a reasonable reader the impression that the parties intended it to be essential.”

12.  Applying that test in relation to the obtaining of the personal data and the on-line teaching, the judge found both “triggering breaches” to be breaches of conditions of the 2003 Agreement, thereby entitling KG to accept them as repudiation.

13.  Although the judge came to the conclusion that the defendant had been in breach of two conditions which justified the plaintiffs accepting the defendant’s repudiation, nevertheless, he went on, as he said: “for completeness sake, (1) proceed to consider the parties’ position, if the triggering breaches were not breaches of condition.”  At the end of that passage the judge came to the conclusion at paragraph 255:

“Even if the triggering breaches, assuming that they were not breaches of condition, were viewed against the background of serious persistent breaches despite repeated warning, they did not have the effect of frustrating the commercial purpose of the tutorial schools or deprive KG substantially the whole benefit under the 2003 Agreement.  On that assumption, I am unable to find that all the breaches taken together constituted a repudiatory breach.”

This appeal

14.  On this appeal, Mr Dykes SC, who appeared on behalf of the defendant, opened his case on the basis that he did not wish to take the pleading point originally outlined in his skeleton argument.  He argued, however, that the judge had wrongly come to the conclusion that the provisions relating to teaching and the protection of the personal data relating to the students were contractual conditions.

15.  In respect of the terms in the Cooperation Agreement which restrict the defendant to providing tutorial services for courses arranged by the plaintiffs, Mr Dykes referred to the ability, acknowledged in the plaintiffs’ evidence, that the defendant was permitted to teach in ordinary day schools in the first year after termination of the Cooperation Agreement and that he was only barred from teaching in other tutorial schools during that period.  It was said that it was unreasonable to prevent the defendant from teaching in government schools during the time when the Cooperation Agreement was in force.  For those two reasons it was argued that terms relating to teaching was not a condition.

16.  Despite the force of Mr Dykes’ submissions, it must nevertheless be considered entirely reasonable for the plaintiffs to protect themselves against competition during the first year after the termination of the Cooperation Agreement.  That competition related to tutorial schools.  It cannot be said that it was any indication that the term was not of the highest importance to the plaintiffs simply because the plaintiffs were prepared for the defendant to teach in ordinary day schools after the termination of the Cooperation Agreement.  Furthermore, any restriction preventing the defendant from teaching in other schools during the period when the Cooperation Agreement was in force would, on the face of the matter, appear entirely reasonable.  The exclusivity of the tutorial services in the plaintiffs’ tutorial schools was a matter of, seemingly, signal commercial importance.  It was thus natural that the plaintiffs would wish to protect themselves against it being said that the services of its tutors could be obtained in other establishments, for example in day schools.

17.  In my view, the term of the Cooperation Agreement was a valid condition and important.  The fact that the defendant was teaching online was, indeed, a clear breach of his obligations under the Cooperation Agreement and the plaintiffs were entitled to treat his conduct as repudiation of the agreement.

18.  Turning to the question of the protection of data relating to the students, the terms of the Teachers’ Guidelines are clear.  The importance of protecting information relating to identity and contact details of clients is recognised in almost every form of business.  The courts have recognised this over the years and, in particular, the grant of innumerable orders of the Anton Piller type since the 1976 are examples of where the courts have recognised and protected such information.

19.  Mr Dykes suggested that a mere single breach could not give rise to termination of the contract.  In that respect it can be said that, as in any other circumstance, the facts of each case must be looked at, but in view of what took place and the repeated breaches after warning, it is impossible to see that this court should hold that a clear and unambiguous provision was not intended by the parties to be observed and to be of high importance.

20.  In those circumstances, I consider that the judge came to the correct conclusions for the correct reasons in respect of his finding as to the contractual conditions.  In the circumstances it is unnecessary to go further and to consider whether, even if the two terms were not conditions, the plaintiffs were still entitled to accept the defendant’s conduct as constituting repudiation of the contract.  I would venture to suggest that there are strong arguments that that would be so.

Hon Le Pichon JA:

21.  I agree.

Hon Stone J:

22.  I agree with the Reasons for Judgment of the Vice-President.