Total English Learning Global Pte Ltd and another v Kids Counsel Pte Ltd and another suit

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang J
• Judgment Date: 01 December 2014
• Neutral Citation: [2014] SGHC 258
• Court: High Court (Singapore)
• Docket Number: Suit No 420 and 822 of 2013
• Published date: 08 December 2014
• Year: 2014
• Hearing Date: 12 August 2014,08 September 2014,14 August 2014,05 August 2014,06 August 2014,20 August 2014,08 August 2014,13 August 2014,21 August 2014,07 August 2014
• Plaintiff Counsel: Mark Goh, Cheryl Ng and Pearl Lim (MG Chambers LLC)
• Defendant Counsel: Daniel Koh, Wong Siew Hong and Favian Kang (Eldan Law LLP),Faizal Shah (Mirandah Law LLP)
• Subject Matter: Contract,Assignment,Breach,Illegality and Public Policy,Restraint of Trade,Tort,Misrepresentation,Conspiracy,Inducement of Breach of Contract,Harassment
• Citation: [2014] SGHC 258

Tay Yong Kwang J: Introduction

This was a dispute arising out of a series of franchise agreements that had been purportedly assigned to the incoming franchisors, Total English Learning Global Pte Ltd (“TELG”) and Total English Learning International Pte Ltd (“TELI”). There were two separate actions before me, namely, Suit No 420 of 2013 (“S 420/2013”) and Suit No 822 of 2013 (“S 822/2013”). TELG and TELI are the plaintiffs (referred to collectively as “the Plaintiffs”) in both actions. Kids Counsel Pte Ltd (“D8”) is the sole defendant in S 420/2013 and the eighth defendant in S 822/2013. There are seven other defendants in S 822/2013: (a) My English Pte Ltd (“D1”); (b) Wise Education Centre Pte Ltd (“D2”); (c) Rolmar Pte Ltd (“D3”); (d) Wise English Pte Ltd (“D4”); (e) Wise Learners Private Limited (“D5”); (f) Literacy Development Pte Ltd (“D6”); and (g) My Literacy Place Pte Ltd (“D7”). Therefore, including D8, there are a total of eight defendants (referred to collectively as “the Defendants”) in S 822/2013. With the exception of D1, the Defendants were the franchisees of the English literacy and phonics programme known as the “I Can Read” system (“the ICR system”).

The present dispute arose after the purported assignment of the franchise agreements by the original franchisor, Total Literacy (Singapore) Pte Ltd (“TLS”), to TELG. Given the overlap between both actions, S 822/2013 was scheduled to be heard immediately after S 420/2013 and the parties were directed to file only one affidavit of evidence-in-chief for each witness in both actions. I reserved judgment upon the conclusion of the trial in late August 2014. On 8 September 2014, I delivered judgment as follows: In relation to S 420/2013: the Plaintiffs’ claims were dismissed; and D8’s counterclaims were dismissed. In relation to S 822/2013: the Plaintiffs’ claims were dismissed; D1’s counterclaim was dismissed; D2–D8’s counterclaim was dismissed; and the injunction granted against D1–D8 in Summons No 4816 of 2013 was set aside with no order as to damages. Each party was to bear its own costs for both actions. TELG (ie, the second plaintiff in S 822/2013) has since filed an appeal against part of my decision. I now set out the grounds for my decision.

The facts Background to the ICR system

The ICR system was developed by two Australian nationals, Annabel Seargeant (“Annabel”) and Antony Earnshaw (“Antony”). Different entities were set up to market the ICR system internationally. For the purposes of the present proceedings, we need to focus only on two entities controlled by Antony and Annabel: the Australian entity, Total Literacy Pty Ltd (“TLA”), and the Singaporean entity, TLS. The trade marks, copyright and other intellectual property rights were supposedly owned by TLA, which then granted a licence to TLS. The arrangement was for TLS to enter into franchise agreements with franchisees in Singapore. Under those franchise agreements, the franchisees, such as D2–D8, were allowed to operate education centres in Singapore offering the ICR system.

The franchisees

TLS entered into multiple franchise agreements with different franchisees for the purpose of exploiting the ICR system in Singapore. Based on the evidence that has been led in the course of the present proceedings, there appeared to be variations in the franchise agreements entered into with different franchisees. In other words, while the structure of the franchise agreements remained broadly similar, there were significant differences in the wording of specific clauses, such as the confidentiality clause and the non-compete clause. As will be seen subsequently, these differences in wording have, at times, given rise to dissimilar outcomes in respect of D2–D8.

D2–D6

D2–D6 were franchisees owned and operated by Kaske Gerold Ulrich (“Kaske”) at the material time. As at the date of the trial, D2–D6 are dormant companies after having sold their businesses to D1. Nevertheless, Kaske remains the director of D2–D6 and he gave evidence on behalf of D2–D6 in the course of the trial.

Kaske has a background in engineering. He worked in the software industry for about 11 years before setting up his own business.¹ He was first involved in the education industry back in 2006 when he acquired D5.² Subsequently, Kaske came to know that the owner of D6 was interested in selling her stake in D6. He proceeded to acquire D6 after obtaining the consent of TLS (ie, the franchisor prior to the purported assignment).³ Over the course of the next few years, Kaske obtained rights from TLS to set up three other ICR centres in Singapore.⁴ D2–D4 were used as corporate vehicles for these additional ICR centres. In total, Kaske owned and operated five ICR centres in Singapore at the material time.⁵

D7

D7 was a franchisee owned and operated by Chih Chien Lih Jennifer (“Jennifer”). Jennifer and her former husband acquired D7 and took over the running of the ICR centre in August 2007.⁶

Jennifer is currently practising as a lawyer in a local law firm. She gave evidence on how Kaske chipped in to lend a hand in the running of her ICR centre as and when she needed assistance.⁷ In return, she would reciprocate by helping out with or giving advice on legal matters. Unlike D2–D6, D7 is still operating although no longer as an ICR centre.

D8

D8 was a franchisee owned and operated by Lum Wai Onn (“Lum”) at the material time. The franchise agreement between D8 and TLS was for an initial term of ten years and the agreement was due to expire on 26 October 2012. It was Lum’s case that the term of the franchise agreement was varied from ten years to one in perpetuity but personal to him. This was the main factual dispute in S 420/2013.

In the course of the trial, Lum gave evidence that he was mainly occupied with his family businesses that were unrelated to the education industry. In other words, the acquisition of D8 was only a side venture for Lum. Unlike D2–D6, D8 is still operating but no longer as an ICR centre.

The franchisors and the purported assignment

TLS was originally the franchisor in the franchise arrangements entered into in Singapore. In other words, the contracting parties in the franchise agreements were TLS and the respective franchisees. The Plaintiffs came into the picture when Antony and Annabel decided to sell the business to the Plaintiffs. This was executed by way of three deeds of assignment dated 19 July 2012.

In the first deed of assignment, there was a purported assignment of the business contracts in Singapore, including the franchise agreements, to TELG.⁸ In the second deed of assignment, the copyright and all other intellectual property rights (excluding the trade mark rights) concerning the ICR system were assigned to TELI.⁹ For the purposes of the present dispute, only the first and second deeds of assignment are relevant. Nevertheless, for completeness, it is noted that the relevant parties also entered into a third deed of assignment where the trade mark rights were assigned to TELG.¹⁰

On 25 July 2012, an email was sent by Annabel on behalf of TLS to the franchisees to inform them about the change in ownership.¹¹ As will be seen below, this email was rather misleading in so far as it suggested that there were “new shareholders” in TLS. In particular, there was no mention of the purported assignment of the franchise agreements from TLS to TELG.

This was followed by a letter dated 1 October 2012 sent by TLS to the franchisees to inform them that the business had been sold to the Plaintiffs and that all future payments were to be directed to TELG.¹² The Plaintiffs relied on this letter as the notice of assignment.

The dispute over the purported assignment

Between October and December 2012, there were meetings and negotiations between the representatives of the Plaintiffs and the respective owners of D2–D8 (ie, Kaske, Jennifer and Lum). In this respect, the situation between the Plaintiffs and D8 was slightly different as compared to the other franchisees as the Plaintiffs maintained the position that D8’s franchise agreement had expired on 26 October 2012. The facts unique to D8 are relevant only to the issues arising in S 420/2013 and will be dealt with separately below.

Meanwhile, the general tenor of the evidence was such that D2–D8 had maintained their position that the assignment was invalid in so far as their consent had not been sought. There was some discussion on the possibility of entering into new franchise agreements and the grant of a power of attorney but nothing came out of those discussions. The concept of a novation agreement was also explored by the parties but this did not materialise eventually.

On 7 December 2012, a letter of demand was issued by the Plaintiffs against D8 regarding, among other things, the non-payment of royalties.¹³

The incorporation of D1

D1 was incorporated on 29 January 2013 and David Chong (“David”) was appointed as the sole director.¹⁴ He was also the sole shareholder of D1. This was followed by the appointment of Kaske as a director of Monkwell on 5 February 2013. David’s shareholding in D1 was transferred to another entity known as Monkwell on 19 February 2013. In the course of the trial, it became clear that David was merely acting as a nominee of Kaske.

On 25 March 2013, Monkwell changed its name to MEIL. This was followed by an increase in the number of shares in D1 on 8 April 2013 from one to ten. Out of the ten shares, nine shares were held by MEIL while the remaining share was held by David. On 24 April 2013, Kaske transferred his shares in MEIL to Loh Lye Ai (“Loh”). It appeared in evidence that Loh was also a nominee acting on behalf of Kaske.

On 25 April 2013, Kaske ceased to be a director of MEIL and Loh was appointed as the director of MEIL in place of Kaske.

The termination of the franchise agreements

D2–D7 terminated their...