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Mathnasium Center Licensing, Llc v Chang Chi Hung (Also Known As Alex Chang)

Judgment Cited authorities 6 Cited in Precedent Map Related
Vincent
Judgment Date11 December 2020
Neutral Citation[2020] HKCA 1016
Year2020
Judgement NumberCACV180/2019
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV180/2019 MATHNASIUM CENTER LICENSING, LLC v. CHANG CHI HUNG (also known as ALEX CHANG)

CACV 180/2019 & CACV 406/2019
(Heard together)

[2020] HKCA 1016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 180 OF 2019 AND 406 OF 2019

(ON APPEAL FROM HCMP NO 1550 OF 2017)

________________________

IN THE MATTER of an application on behalf of MATHNASIUM CENTRE LICENSING, LLC against CHANG CHI HUNG (張志洪) (also known as ALEX CHANG) for an order of committal

and
IN THE MATTER of Order 52 rule 3 of the Rules of the High Court, Cap 4A

________________________

BETWEEN
MATHNASIUM CENTER LICENSING, LLC Plaintiff
and
CHANG CHI HUNG (張志洪)
(also known as ALEX CHANG)		 Defendant

________________________

(Heard together)

Before: Hon Kwan VP, Cheung JA and Au JA in Court

Date of Hearing: 26 November 2020

Date of Judgment: 26 November 2020

Date of Reasons for Judgment: 11 December 2020

________________________

REASONS FOR JUDGMENT

________________________

Hon Kwan VP (giving the Reasons for Judgment of the Court):

1. On 18 March 2019, Wilson Chan J handed down his judgment (“the Judgment”)[1] in these proceedings for contempt (HCMP 1550/2017) after a five-day trial at the end of 2018. The judge found the defendant Chang Chi Hung, also known as Alex Chang, guilty of contempt of court for making a false admission in a defence and counterclaim and in an amended defence and counterclaim verified by statements of truth. On 8 August 2019, the judge sentenced the defendant to three months’ imprisonment (“the Sentencing Judgment”)[2]. The defendant brought these appeals against the finding of contempt and the sentence. The judge had stayed the order of committal pending appeal. At the conclusion of the hearing, we allowed the appeals and set aside the judge’s orders on 18 March and 8 August 2019. These are the reasons of the court.

Background

(1) The parties and the learning centres

2. The plaintiff, Mathnasium Center Licencing, LLC, is a company incorporated in the State of California, USA and is engaged in the business of operating Mathematics learning centres. It is the registered owner of the “Mathnasium” trademarks and “Mathnasium” branded teaching materials, know-how and techniques.

3. Mathnasium Hong Kong Limited, formerly known as Math Concept (H.K.) Limited (“MHK”)[3], was incorporated in Hong Kong. The defendant was its sole shareholder and from 23 October 2009 to 2 May 2016 he was the sole director of MHK.

4. On 20 November 2009, the plaintiff entered into a Regional Franchise Agreement (“RFA”) with MHK, by which the latter was granted a licence to use the “Mathnasium” trademarks and system as the Regional Franchisor and was allowed to establish and operate “Mathnasium” branded learning centres in Hong Kong. The Mathnasium centres under the RFA were of two kinds: those owned or operated by the Regional Franchisor (“Regional Franchisor Centres” or “RFCs”), and those established and operated by franchisees licensed by the Regional Franchisor pursuant to franchise agreements as per Exhibit D to the RFA (“Franchised Centres” or “FCs”). In relation to payments to the plaintiff under the RFA, MHK was required to pay the plaintiff every month a royalty fee equal to 11% of MHK’s gross receipts from RFCs at no less than US$7 per month per student, and 30% of the monthly royalty fee received by MHK from its franchisees according to the franchise agreements at no less than US$5 per month per student.

5. In July 2014, the plaintiff served notice on MHK to terminate the RFA on the ground of MHK’s failure to pay the monthly royalty payments. By a letter dated 12 September 2014 from the plaintiff’s solicitors to MHK, the plaintiff demanded payment of the amount owing and in compliance with the post-termination obligations as provided in the RFA. The letter mentioned that the solicitors had visited 12 learning centres as per schedule 1 attached and pointed out that MHK had fully exploited the plaintiff’s intellectual property rights, and was doing so beyond the termination date without the plaintiff’s consent. As regards the 12 learning centres listed in the schedule, the solicitors did not differentiate between RFC and FC.

(2) The action against MHK in HCA 1012/2015

6. On 8 May 2015, the plaintiff issued a writ against MHK in HCA 1012/2015 endorsed with a statement of claim. The reliefs sought in the prayer were an order that MHK do provide all financial reports and royalty reports on all “the HK Centres”, an order that MHK do comply with all the post-termination obligations, and damages. “The HK Centres” as collectively defined in §5b of the statement of claim are the same 12 learning centres referred to in the letter of 12 September 2014. I will come back to the allegations concerning these learning centres as pleaded in the statement of claim.

7. On 4 September 2015, MHK filed a defence and counterclaim between 2 to 3 pm, and managed to meet the deadline for filing of 4 pm that day pursuant to an unless order. The defence is a document of 16 pages with 69 paragraphs. It bore the name of Arthur Yip Chi Ho of counsel (“Mr Yip”) and was signed by MHK’s solicitors, Hoosenally & Neo. It was verified by a statement of truth signed by the defendant on behalf of MHK, stating as follows: “We, Mathnasium Hong Kong Limited (formerly known as Math Concept (H.K.) Limited), the Defendant believe that the facts stated in this Defence are true.” I will return to this pleading.

8. On 5 November 2015, MHK filed an amended defence and counterclaim. The amendments were for the purpose of deleting an averment that the action should be brought in the courts of California. It was verified by a statement of truth signed by the defendant on behalf of MHK in the same terms as before.

9. On 27 May 2016, the plaintiff issued a summons for summary judgment in terms of the reliefs sought in the prayer of the statement of claim, alternatively for interim payment. The application was supported by an affidavit of Whitney Novak, who referred to the letter of 12 September 2014 and deposed for the plaintiff that MHK “defiantly continues to use the Plaintiff’s proprietary system and operate 13 “Mathnasium Centres” in Hong Kong, albeit trading under an alternative name.” MHK did not file evidence in opposition to the summons.

10. That summons was heard by Master Lai on 20 June 2016. Ben Chan Siu Pan (“Mr Chan”) of Hoosenally & Neo appeared for MHK[4]. The plaintiff’s counsel informed the master that the parties had in principle agreed to an order for final judgment against MHK as sought in the summons. Master Lai raised the concern whether it would be appropriate for final judgment to be entered in such form and suggested a Tomlin order for the proceedings to be stayed for the purpose of carrying out the agreed terms in a schedule to the order. The parties agreed to enter into a Tomlin order and this was made on 22 June 2016.

11. The schedule to the Tomlin order provided that (1) within 21 days from the date of the order, MHK was to disclose to the plaintiff for inspection and to take copies of all financial reports and royalty reports of “all the learning centres operated by the Defendant [i.e. MHK] in Hong Kong from May 2012 to date”; (2) within 21 days, MHK was to comply with various post-termination obligations as stated including the payment of “all sums owing under the terms of the RFA”; and (3) damages to be assessed. The schedule did not specify the number and particulars of the learning centres “operated by the Defendant”.

12. On 11 July 2016, Hoosenally & Neo sent to the plaintiff’s solicitors the monthly reports of MHK from June 2010 to September 2014. The plaintiff’s solicitors wrote in reply on 12 July 2016 stating that the information provided did not comply with the Tomlin order and that the plaintiff’s officer would attend each of 17 learning centres for on-site inspection and take copies of all financial reports and royalty reports at each centre.

13. On 15 July 2016, the plaintiff issued a summons to enforce the terms in the schedule to the Tomlin order. It sought judgment in the sum of US$1,142,569.17 being the minimum amount of royalties payable; unrestricted access to all the learning centres “operated by the Defendant [i.e. MHK] in Hong Kong from May 2012 to date, including but not limited to those listed in Annexure 1”, to verify MHK’s compliance with post‑termination obligations; and unrestricted access to inspect all books and records of “the Defendant’s learning centres” aforesaid. A total of 19 learning centres in Hong Kong and Macau were listed in Annexure 1.

14. The enforcement summons came before Master K Lo on 18 July 2016. MHK again appeared by Mr Chan. He informed the master that he had confirmed with MHK that the learning centres in Annexure 1 “are not operated by the defendant’s company or owned by the defendant”[5]. The plaintiff’s counsel submitted that 12 learning centres were pleaded in the statement of claim and it was admitted in the defence that MHK operated the 12 learning centres and that Annexure 1 contained seven more which the plaintiff found on MHK’s website[6]. After a brief adjournment for Mr Chan to search the website of MHK, the plaintiff’s counsel informed the master without any dissent from Mr Chan that of the 19 learning centres, the first 13 were not disputed but there was a question whether the remaining six were operated by MHK[7]. The master entered judgment for the plaintiff in the sum of US$1,142,569.17 and allowed reasonable access to the plaintiff to “all the learning centres operated by the Defendant [i.e. MHK] in Hong Kong from May 2012 to date, limited to those listed from 1 to 13 in Annexure 1”, for the purposes...

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