Tan Wee Fong v Denieru Tatsu F&B Holdings (S) Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 31 December 2009
• Date: 31 December 2009
• Docket Number: Suit No 461 of 2008
• Court: High Court (Singapore)

Tan Wee Fong and others

Plaintiff

and

Denieru Tatsu F&B Holdings (S) Pte Ltd

Defendant

[2009] SGHC 290

Belinda Ang Saw Ean J

Suit No 461 of 2008

High Court

Contract–Remedies–Damages–Whether damages for loss of benefit of future performance under the contract ( loss of bargain damages ) recoverable–Whether loss of bargain damages recoverable upon termination pursuant solely to express contractual provision

Damages–Liquidated damages or penalty–Whether claimant entitled to recover liquidated damages where loss of bargain damages were non-recoverable

Equity–Relief –Against forfeiture–Whether relief against forfeiture might be granted in contractual dispute cases unconnected to interests in land

The plaintiffs purchased from the defendant the right to operate a country master franchise in Malaysia. This arrangement was effected through two agreements, namely, a Country Master Partner Agreement dated 1 May 2008 ( CMPA ), and a Confidentiality and Non-Competition Agreement also dated 1 May 2008 ( CNCA ). Under cl 7.1 of the CMPA, the plaintiffs had to pay the defendant an upfront fee of US$205,000 ( the upfront fee ). Clause 9.4 of the CMPA conferred on the defendant the right to terminate the CMPA pursuant to a breach of the CNCA and provided that upon termination, fees already paid to the defendant would be non-refundable. Clause 2.1 of the CMPA and cl 7 of the CNCA provided that the defendant was entitled to seek liquidated damages from the plaintiffs of up to five times the upfront fee upon breach of the CNCA. Clause 4 of the CNCA was a non-solicitation clause restraining the plaintiffs from, inter alia, attempting to employ or soliciting for the employment of any of the defendant's employees. Shortly after the conclusion of the two agreements, the defendant gave written notice of immediate termination of the CMPA pursuant to cl 9.4 of the CMPA on the basis of the plaintiffs' breach of cl 4 of the CNCA. The defendant accused the plaintiffs of soliciting for the employment of two of the defendant's staff. The plaintiffs responded by suing the defendant for wrongful termination of the CMPA. The plaintiffs denied that they were in breach of the CNCA, or that the defendant was entitled to terminate the CMPA.

The defendant counterclaimed US$1.025m in liquidated damages, or alternatively general damages. It also sought to retain the upfront fee and to set off $77,541.60 the plaintiff had paid to the defendant by mistake against its primary claim.

Held, dismissing the plaintiff's claim and allowing the defendant's counterclaim in part:

(1) The plaintiffs had breached cl 4 of the CNCA by attempting to employ or soliciting for the employment of two of the defendant's staff. Breach of cl 4 of the CNCA entitled the defendant to terminate pursuant to cl 9.4 of the CMPA: at [15] to [27].

(2) Where a party terminated pursuant to express contractual provisions but had no concurrent right to terminate at the common law, the only remedy available to the innocent party was the recovery of damages for unperformed accrued obligations up to the date of termination. In other words, the innocent party was not entitled to claim damages for the loss of the benefit of the plaintiffs' future performance under the contract ( loss of bargain damages ) having terminated pursuant solely to an express contractual provision: at [29] to [35].

(3) Clause 4 of the CNCA was not a condition. Hence, a breach of cl 4 did not give rise to a right to terminate at the common law. In the circumstances, the defendant, having terminated pursuant solely to an express contractual provision (cl 9.4 of the CMPA), was not entitled to loss of bargain damages. As no real loss had been caused by the breach and no unperformed obligations had accrued at the date of termination, the defendant was entitled only to nominal damages. Furthermore, the defendant did not contest liability but sought only to set-off the claim of $77,541.60 against its primary counterclaim. Accordingly, it had to repay the plaintiff the said sum: at [36] to [41] and [49].

(4) Since the defendant was not entitled to loss of bargain damages, there was no justification for payment of liquidated damages based on a genuine pre-estimate of the loss of bargain by reason of the breach. In any event, the liquidated damages clauses (cl 2.1 of the CMPA and cl 7 of the CNCA) relied upon by the defendant were unenforceable as penalties. The clauses provided for the payment of a single fixed sum of US$1.025m regardless of the severity of the breach and when the breach had occurred: at [42] to [48].

(5) The defendant was entitled to retain the upfront fee. Clause 7.1 of the CNCA simply defined the defendant's right to retain the upfront fee and cl 9.4 affirmed the non-refundable nature of that fee by providing that all fees paid were non-refundable even upon termination. These clauses were not penalty clauses because they provided for the retention of fees and were not concerned with payment of a sum upon a breach: at [57] to [60].

(6) The plaintiffs were not entitled to relief against forfeiture of the upfront fee. It remained an open question whether relief against forfeiture might be granted in cases unconnected with any interest in land, such as the present case. Nonetheless, even if relief against forfeiture could be granted in the present case, there was no unconscionability on the part of the defendant to justify the granting of such relief: at [62] to [71].

Chua Chian Ya v Music & Movements (S) Pte Ltd [2010] 1 SLR 607 (refd)

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (refd)

Dyno-rod plc v Reeve [1999] FSR 148 (refd)

Financings Ltd v Baldock [1963] 2 QB 104 (refd)

Fu Yuan Foodstuff Manufacturer Pte Ltd v Methodist Welfare Services [2009] 3 SLR (R) 925; [2009] 3 SLR 925 (refd)

Hellmann Insurance Brokers v Peterson [2003] NSWSC 242 (refd)

Hong Leong Finance Ltd v Tan Gin Huay [1999] 1 SLR (R) 755; [1999] 2 SLR 153 (refd)

Jobson v Johnson [1989] 1 WLR 1026 (refd)

Lancore Services Ltd v Barclays Bank plc [2008] EWHC 1264 (refd)

Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR (R) 537; [2007] 3 SLR 537 (refd)

Lombard North Central plc v Butterworth [1987] QB 527 (refd)

Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR (R) 663; [2008] 1 SLR 663 (refd)

Metro Alliance Holdings & Equities Corp v WestLB AG [2008] 1 SLR (R) 139; [2008] 1 SLR 139 (refd)

Multiservice Bookbinding Ltd v Marden [1979] Ch 84 (refd)

Ng Gian Hon v Westcomb Securities Pte Ltd [2009] 3 SLR (R) 518; [2009] 3 SLR 518 (refd)

On Demand Information plc v Michael Gerson (Finance) plc [2003] 1 AC 368 (refd)

Pacific Rim Investments Pte Ltd v Lam Seng Tiong [1995] 2 SLR (R) 643; [1995] 3 SLR 1 (refd)

RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR (R) 413; [2007] 4 SLR 413 (refd)

Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1983] 2 AC 69 (refd)

Sport Internationaal Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776 (refd)

Sports Connection Pte Ltd v Deuter Sports GmbH [2009] 3 SLR (R) 883; [2009] 3 SLR 883 (refd)

Stockloser v Johnson [1954] 1 QB 476 (refd)

Triangle Auto Pte Ltd v Zheng Zi Construction Pte Ltd [2000] 3 SLR (R) 594; [2001] 1 SLR 370 (refd)

Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 (refd)

Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 (refd)

N Sreenivasan and Heng Wangxing (Straits Law Practice LLC) for the plaintiffs

Kelvin Tan (instructed), Lawrence Lim (Mathew Chiong Partnership) for the defendant.

Belinda Ang Saw Ean J

Introduction

1 This case involved two agreements that gave effect to the plaintiffs' purchase from the defendant of the right to operate a country master franchise, namely, the Country Master Partner Agreement dated 1 May 2008 ( CMPA ), and the Confidentiality and Non-Competition Agreement also dated 1 May 2008 ( CNCA ). Shortly after the conclusion of the two agreements, on 29 May 2008, the defendant gave written notice of immediate termination of the CMPA on the basis of the plaintiffs' breach of a non-solicitation provision in the CNCA. The plaintiffs responded by suing the defendant on 4 July 2008 for wrongful termination of the CMPA. The plaintiffs denied that they were in breach of the CNCA, or that the defendant was entitled to terminate the CMPA.

2 In this action, the plaintiffs sought (a) damages amounting to $321,120.15 for wrongful termination of the CMPA; (b) loss of profits amounting to some $5m; (c) a refund of the partnership and outlet fees amounting to US$205,000 paid to the defendant; and (d) a refund of $77,541.60 paid to the defendant on 26 May 2008 for food products and packaging material that were never delivered. In response, the defendant contended that it was entitled to terminate the CMPA and filed a counterclaim against the plaintiffs for liquidated damages in the sum of US$1.025m. The defendant also maintained that it was entitled under the terms of the CMPA to retain the partnership and outlet fees. As for the $77,541.60, the defendant argued that it was entitled to retain the money to set off in part the liquidated damages that was due to the defendant.

Undisputed background facts

3 The defendant is the owner and franchisor of the Shihlin Taiwan Street Snacks and its Quick Service System ( the franchise ). The defendant has two franchise models outside Singapore - a single unit franchise and a country master franchise. A single unit franchise allows the franchisee to operate one franchise outlet. A country master franchise allows the franchisee to operate multiple franchises and to sub-franchise a single unit franchise to a third party. The plaintiffs are Malaysian citizens with business interests in Malaysia. The first plaintiff, Tan Wee Fong ( Tan ), and the third plaintiff, Heng Boon Thai ( Heng ), already operate a single unit franchise in Johor Bahru. The second...