Shanghai Afute Food and Beverage Management Co. Ltd. v Tan Swee Meng & 2 Ors

Facts

Shanghai Afute Food and Beverage Management Co Ltd, which claims to own the After Coffee mark for fruit- and vegetable-infused coffee, sued Tan Swee Meng and two Singapore companies, Stay Victory Industries Pte Ltd and Famous 5 Holdings Pte Ltd, in Suit No 854 of 2020, consolidated with Mr Tan's own Suit No 771 of 2020. On 6 November 2019 Mr Tan signed a master franchise agreement with the plaintiff, through its majority shareholder Lee Eng Tat, to operate the After Coffee brand in Singapore for agent fees of 1.6 million yuan. Stay Victory was incorporated to run the business and a lease was taken at Vivocity.

The relationship broke down. On 23 July 2020 a beverage business under a Beyond Coffee mark opened at Vivocity, selling fruit-and-coffee drinks, and Stay Victory's entire business was sold to Umbrella Ventures, a subsidiary of Famous 5, for $1 under an agreement backdated to 1 July 2020. A second store followed at Bukit Batok. Mr Tan and Stay Victory had earlier been held in contempt for using the plaintiff's recipes in breach of an injunction. The plaintiff claimed breach of contract, breach of confidence, passing off and unlawful means conspiracy. Mr Tan said the franchise agreement was terminated in November 2019 in favour of a joint venture, and counterclaimed against Mr Lee and Ho Pei Jia Anna for fraudulent misrepresentation, conspiracy and unjust enrichment, alleging he had been induced to lend money by Mr Lee's claim to have lent RMB3m to the plaintiff. Stay Victory and Famous 5 did not appear.

Issues

1. Whether the master franchise agreement was terminated in November 2019, and if not, whether Mr Tan and Stay Victory breached its confidentiality and non-competition clauses
2. Whether the plaintiff established breach of confidence and passing off
3. Whether the defendants were liable for conspiracy by unlawful means
4. Whether Mr Tan's counterclaims for fraudulent misrepresentation, conspiracy and unjust enrichment succeeded

Holding

Dedar Singh Gill J allowed the plaintiff's claim in part. The plaintiff succeeded on breach of cl 6(5) of the master franchise agreement, breach of confidence over its recipes and ingredient lists, and unlawful means conspiracy, but failed on breach of cl 10, passing off and the storage costs claim. The court ordered an inquiry as to damages for the contractual breach, an injunction against Mr Tan restraining use of the recipes and ingredient lists until they lose their confidential nature, currency or value, delivery up of documents containing them, and an inquiry into loss of profits from 23 July 2020 to 21 September 2021. All of Mr Tan's counterclaims were dismissed. Costs were to be heard separately.

Reasoning

The judge found the master franchise agreement validly formed and not terminated in November 2019: Mr Tan's account shifted, the messages concerned a new corporate structure rather than termination, the joint venture was never concluded, and his payments fitted the franchise. On the plaintiff's own case the agreement ended when Mr Tan exited at the 7 July 2020 meeting.

On cl 6(5), which barred revealing or selling the plaintiff's trade secrets, the judge held that only the 31 recipes and ingredient lists qualified. Menu names were not shown to be misused, the store design had been made public in a magazine article, and the other categories were too vague. Selling Stay Victory's business to Umbrella Ventures disclosed the recipes, which the competing business used in nearly identical form. The non-competition clause in cl 10 was not breached, because the Vivocity store opened after the agreement ended.

On breach of confidence, the interest at stake was wrongful gain, so the traditional three-part test applied. Only the recipes were confidential; they were imparted under the franchise and used to the plaintiff's detriment.

Passing off failed because the limited pre-launch publicity did not generate goodwill in Singapore.

On conspiracy, the backdated sale to Umbrella Ventures, done in breach of cl 6(5) and without following the company's notice requirements, supported the inference that Mr Tan intended to deprive the plaintiff of its franchise interest, even if he also wanted to cut his lease losses. Lost Vivocity profits were proved; lost future stores were speculative.

On the counterclaims, Mr Tan conceded that Ms Ho made no representation, and he failed to prove Mr Lee's RMB3m statement false in the face of records showing contributions. The conspiracy counterclaim therefore lacked an unlawful act. Unjust enrichment failed for want of a pleaded unjust factor and on the merits, since the payments were made under a subsisting franchise agreement.

From the judgment