Spire Concepts Pty Ltd v Suzie Dukes Pty Ltd

[2024] NSWSC 412

Supreme Court

New South Wales

Medium Neutral Citation:

Spire Concepts Pty Ltd v Suzie Dukes Pty Ltd [2024] NSWSC 412

Hearing dates:

25 March 2024

Decision date:

19 April 2024

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

(1)   Judgment in favour of the third plaintiff against the first defendant in the sum of $113,357.78;

(2)   Judgment in favour of the first plaintiff against the second, third, fourth and fifth defendants in the sum of $50,000.00;

(3)   The defendants pay 50 percent of the plaintiffs’ costs of the plaintiffs’ claim as agreed or assessed;

(4)   The cross-claim be dismissed with costs.

Catchwords:

CONTRACTS — Remedies — Damages — Whether party is entitled to recover damages for breach of contract

CONTRACTS — Remedies — Specific performance — Where contract is part of parties’ larger commercial relationship

ESTOPPEL — Promissory estoppel — Relief — Application of legal principles

Cases Cited:

Robinson v Harman (1848) 1 EXCH 850; 154 ER 363

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8

The Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54

Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387; [1988] HCA 7

Category:

Principal judgment

Parties:

Spire Concepts Pty Ltd (First Plaintiff)
Suzie Dukes Group Pty Ltd (Second Plaintiff)
Suzie Dukes Leasing Pty Ltd (Third Plaintiff)
ST Leasing Pty Ltd (Fourth Plaintiff)
Sharetea Leasing Pty Ltd (Fifth Plaintiff)
Suzie Dukes Pty Ltd (First Defendant)
Suzie Dukes North Rocks Pty Ltd (Second Defendant)
M Ly Corporation Pty Ltd (Third Defendant)
Michael Ly (Fourth Defendant)
Suzie Dukes HQ Pty Ltd (Fifth Defendant)

Representation:

Counsel:
Z Graus (Plaintiffs)

Solicitors:
Mills Oakley (Plaintiffs)

File Number(s):

2023/306127

Publication restriction:

None

JUDGMENT

Introduction

1. In these proceedings, the plaintiffs seek specific performance of an agreement entered into on or about 28 August 2022 (the Sale Agreement) by which the defendants, or some of them, agreed to sell to the first plaintiff, Spire Concepts Pty Ltd (Spire), the intellectual property rights relating to a hamburger restaurant business known as “Suzie Dukes” and agreed to enter into a franchise agreement with the second plaintiff, Suzie Dukes Group Pty Limited (SD Group). The plaintiffs also claim damages for breach of the Sale Agreement and compensation said to arise from a promissory estoppel. The defendants filed a cross-claim seeking, among other things, a declaration that the Sale Agreement is not binding on them or that it has been validly terminated. They also sought several other orders and damages arising out of the relationship between the parties.

2. There was no appearance by the defendants at the hearing of the matter. I was satisfied that they were on notice of the hearing. At the time the matter was set down for hearing, they were represented, although their solicitors have subsequently filed a notice of ceasing to act. Following the filing of the notice of ceasing to act, a number of emails have been sent to Mr Michael Ly, the fourth defendant and the controlling mind of the other defendants, notifying him of the hearing. No response was received to those emails. The hearing therefore proceeded in the absence of the defendants. No evidence was led or submissions read in support of the cross-claim. It, therefore, must be dismissed with costs. The only issues to be resolved are those raised by the summons and list statement.

Factual background

3. The plaintiffs are controlled by Mr Teng (Anthony) Mu who is also the chief executive officer of Sharetea Australia Pty Ltd (Sharetea), a company which he controls with his mother. Sharetea and associated companies operate a substantial franchise business of retail bubble tea stores in Australia, which currently consists of approximately 110 stores. Some of the stores are leased from the owners by other companies in the group, including the fourth plaintiff, ST Leasing Pty Ltd (ST Leasing), and the fifth plaintiff, Sharetea Leasing Pty Limited (Sharetea Leasing). They, in turn, licence or sublease the stores to franchisees or to Sharetea, which itself operates several retail stores.

4. Prior to and in early 2021, companies associated with Mr Ly operated three hamburger businesses trading under the name “Suzie Dukes”. One store in Kareela and another in Ingleburn were operated by the first defendant, Suzie Dukes Pty Ltd (SD). The third store at North Rocks was operated by the second defendant, Suzie Dukes North Rocks Pty Limited (SDNR).

5. In mid‑2021, Mr Mu and Mr Ly were introduced to one another by a mutual friend, Mr Arsallan Mangal, who at that time was in discussions with Mr Mu about becoming a full‑time employee of Mr Mu’s business and who suggested that Mr Mu may be interested in investing in the Suzie Dukes business. At the time, apart from the Sharetea business, Mr Mu and his mother also owned a retail bakery business that trades under the name “Doughkyo”. Mr Mu was interested in acquiring other franchise businesses and established Spire Retail Pty Ltd (Spire Retail) and subsequently several other companies including Spire, for that purpose.

6. Discussions with Mr Ly, in which Mr Mangal was closely involved, progressed. In September 2021, Mr Mangal was appointed Chief Commercial Officer – General Manager at Sharetea and, in that capacity, he was the person principally responsible for negotiating with Mr Ly.

7. The structure of the agreement that was ultimately reached with Mr Ly was that one or more companies associated with Mr Mu would acquire the confidential information and intellectual property associated with the Suzie Dukes business, Mr Ly would obtain a minority interest in the new business and become an employee of it. In addition, the new business would grant Mr Ly a franchise to operate up to seven Suzie Dukes outlets, including the three outlets then operated by SD and SDNR, on favourable terms.

8. In mid-2022, Mr Mu and his mother caused SD Group to be incorporated, with the intention that it would act as franchisor of the Suzie Dukes business.

9. In anticipation of formal agreements being signed, the parties took steps to identify suitable sites for Suzie Dukes stores, arranged for some promotional material to be prepared, began to negotiate a formal lease for a site at Fairfield West and entered into discussions with potential franchisees. On or about 22 July 2022, Kincumber Catering Pty Ltd (Kincumber Catering), a company controlled by Mr Ian Hobson, a friend of Mr Mangal, executed a deed poll in favour of SD Group, among others, by which Kincumber Catering or Mr Hobson agreed to enter into a franchise agreement with SD Group. That store commenced operating in mid-2022 and, it appears, continues to operate. Mr Mangal also commenced negotiations to acquire leases of premises in Glenmore Park and Fairfield, both of which were intended to operate as combined Suzie Dukes and Sharetea stores, which Mr Mu describes in his affidavit evidence as “Dual Concept Sites”.

10. On or about 28 August 2022, Mr Ly entered into an employment agreement with SD Group.

11. On or about 28 August 2022, SD, Spire, SDNR, the third defendant, M.Ly Corporation Pty Ltd (MLy Corp), Mr Ly, the fifth defendant, Suzie Dukes HQ Pty Ltd (SDHQ) and SD Group entered into the Sale Agreement.

12. The recitals to the agreement record:

A.   The Sellers [defined as SDNR, MLy Corp, Mr Ly and SDHQ] are the owners and/or users of the Assets.

B.    The parties to this agreement intend to continue to work together to promote the Suzie Dukes Brand through the Franchise Arrangement.

C.    In order to give effect to the Franchise Arrangement, the Sellers have agreed to sell, and Spire has agreed to buy, the Assets on the terms and conditions of this agreement.

13. Clause 2 of the Sale Agreement provides:

Sale and Purchase

2.1   In consideration for payment of the Purchase Price, the Sellers agree to sell to Spire and Spire agrees to purchase from the Sellers the Assets … free from all security interests, liens, charges, encumbrances, pledges, options and adverse equities or interest of any kind which are actually known to the Sellers as at the date of this agreement and as at completion, on the terms and conditions of this agreement.

2.2   Spire must pay the Purchase Price to the Sellers on the Completion Date.

14. “Purchase Price” is defined to mean $100,000. “Assets” is defined to mean “the Confidential Information, the Intellectual Property and the Business Name”. “Business Name” is defined to mean “the registered Australian Business Name 'Suzie Dukes' which, as at the date of this agreement, is registered to MLy Corp”. “Confidential Information” is defined to mean:

in respect of the Suzie Dukes Brand

(a)    any trade secret, know-how, invention, concept, recipe (including but not limited to burger and milkshake recipes used by the Suzie Duke Brand as at the date of this agreement), ingredient list, operations manuals, software program, application, process, design, drawing, program, formula, work in progress, engineering, manufacturing, marketing, business information;

(b)    any non-public business information including historical customer information and data, budgets, operating expenses and capital costs, project capital additions;

(c)    any document, diagram, photograph, drawing, or other communication which is marked ‘confidential’ or which a person should know or reasonably should have known to be confidential.

“Intellectual Property” is defined in the following terms:

… the Intellectual Property Rights in the Suzie Dukes Brand including the Intellectual Property Rights described in Schedule 1 and any associated drawings and designs, brochures or banners, in each case to the extent owned by, or otherwise in the possession, of the Sellers as at the date of this agreement and as at Completion.

15. Clause 3.1 of the agreement provides:

The parties acknowledge and agree to take all steps necessary, and sign all documents required, to implement the Franchise Arrangement.

16. “Franchise Arrangement” is defined to mean:

… the use of the Suzie Dukes Brand and the Assets in a franchising structure in which:

(a)    the Group [that is, SD Group] (or its nominee) is the franchisor and licences [sic] the Assets from Spire;

(b)    SD and SDNR (or their nominees) are franchisees;

(c)    Michael [Ly] is employed by the Group (or its nominee) as a brand manager of the Suzie Dukes Brand on the terms of the Employment Agreement.

17. Clause 3 of the Sale Agreement contains a number of obligations in relation to what was described as the Franchise Arrangement including an obligation on Spire to license the Assets to SD Group and an obligation on SD and SDNR to enter into franchise agreements with SD Group and to cause the entity in control of the Kincumber shop to enter into a franchise agreement with SD Group. Clause 3.3 also gave SD Group or its nominee a right to elect to have the leases in respect of the North Rocks and Kareela stores transferred to it.

18. Clause 4 of the Sale Agreement relevantly states:

4.1   Conditions Precedent to Completion

The Sellers's and Spire' s obligations to complete the sale and purchase of the Assets are not binding until the condition precedent set out in clause 4.2 below are satisfied or waived under clause 4.3.

4.2   Conditions Precedent

The Conditions Precedent are:

(a)    Spire has conducted its Due Diligence during the Due Diligence Period and has advised the Sellers in writing, that it is satisfied with the information provided and that it will Complete this agreement;

(b)    the entry into the Employment Agreement;

(c)    the entry into the Shareholder's Agreement;

(d)    the termination by the Sellers of any licence that permits the Kincumber Shop to use the Assets;

(e)   the entry into the franchise agreement(s) contemplated by clause 3.2;

(f)    to the extent that there is any Registered Security Interest in respect of, or that effects the Assets, each holder of a Registered Security Interest confirming in writing that such Registered Security will be released on Completion.

4.3   Waiver

(a)    The parties may waive any of the Conditions Precedent by written agreement.

(b)    A Condition Precedent that is waived in accordance with this clause 4.3 is effective only to the extent specifically set out in that waiver.

19. Clause 4.5 provides that if the conditions precedent are not satisfied or waived before the End Date, then the agreement terminates the day following the End Date. The End Date was 11 October 2022.

20. The Sellers give several warranties in cl 7, including a warranty that the Assets are unencumbered, but not a warranty that they own the Assets.

21. Clause 14.2 of the Sale Agreement provides:

If anything in this agreement is unenforceable, illegal or void then it is severed and the rest of this agreement remains in force.

22. On or about the date the Sale Agreement was executed, SD Group, Spire Retail and Mr Ly executed the shareholders agreement contemplated by cl 4.2(c).

23. After the Sale Agreement was signed, the parties continued to take steps to give effect to the Franchise Arrangement.

24. On 26 September 2022, Mr Ly commenced employment with SD Group.

25. Mr Mangal identified premises in Glenmore Park where, in about September 2022, steps were taken for it to be fitted out as a Dual Concept Store. Negotiations for a lease of those premises continued throughout September 2022. Messrs Mu, Ly and Mangal met with the designer regarding the fit-out of the store and in late September 2022, ST Leasing executed a lease for the store and the store was fitted out in October 2022. It was intended that the franchisee of the store would be Mr Mangal’s brother, who bore most of the expenses of the fit-out. The store started to trade on 27 April 2023, although no formal franchise agreement had been entered into. Mr Ly was involved in giving instructions in relation to the fit-out.

26. In about September 2022, premises were located in Fairfield West and negotiations with the owner of those premises for a lease commenced. In late September 2022, Mr Mangal signed a contract in respect of the design of the premises and on 14 October 2022, Sharetea Leasing signed a lease for the premises with the intention that it would be operated as a Dual Concept Store by a franchisee who had not yet been identified.

27. On 6 October 2022, Mr Mu and his mother caused the third plaintiff, Suzie Dukes Leasing Pty Ltd (SD Leasing), to be incorporated with the intention that it would be one of the entities that would lease premises that would then be subleased to franchisees of SD Group or to SD Group itself for the purpose of it operating a Suzie Dukes corporate store. In the meantime, work progressed on the design of the store at Macquarie Park and on 24 November 2022, ST Leasing executed a lease for those premises.

28. On 5 December 2022, Messrs Ly, Mangal and Mu met at Sharetea’s offices in Kent Street, Sydney. At that meeting, Mr Mu agreed to pay the Vendors under the Sale Agreement $50,000 and to forego royalties that he claimed were payable by SD and SDNR in respect of the three Suzie Dukes stores they operated in full payment for the Assets. The uncontradicted evidence of Mr Mu is that Mr Ly agreed. Mr Mu also raised the question of Mr Ly’s shareholding in SD Group. Mr Ly replied that he wanted to get tax advice before the shares were issued and that he might want his wife to be the director and shareholder. He asked Mr Mu not to do anything until he had obtained that advice. He resigned as a director of SD Group on the same day. Mr Mu says that they agreed that they needed to focus on advancing the Suzie Dukes brand, particularly since several sites had already been identified.

29. Following the conversation on 5 December, on or about 8 December 2022, Mr Mu caused Spire to pay MLy Corp $50,000. Mr Mu’s evidence is that at about the same time Mr Mangal told him that Mr Ly had taken steps to transfer Suzie Dukes business name to him and that he needed to accept the transfer on-line, which he failed to do.

30. In late December 2022, the Kareela store and the Ingleburn store ceased to trade because the lessees of the stores were in arrears in rent and the leases were terminated.

31. On 4 January 2023, Mr Ly signed a Request for a Full Assignment or Transmission of a Trademark form in respect of the Suzie Dukes trademarks in favour of Spire, which was subsequently registered, with the result that Spire is now the registered owner of those marks.

32. On 16 February 2023, ST Leasing signed a lease for premises in Preston and a designer was engaged to provide feedback on a preliminary design for those premises.

33. Premises were also identified at Bateau Bay. A lease was signed for the premises on Bateau Bay on or about 21 March 2023 and during late March 2023 work was progressed on the design of those premises.

34. In early 2023, Mr Mangal identified premises in Minto and on 16 February 2023 signed an offer to lease those premises. On 11 April 2023, SD Leasing executed a lease for the premises, which it was expected would be operated by Mr Ly. In fact, from about 20 April 2023, SD operated a Suzie Dukes store from those premises and occupied it pursuant to a licence granted by SD Leasing. SD only paid one instalment for the licence fee for the premises in the amount of $10,221.56. Eventually, SD Leasing terminated the licence with SD and Spire Retail Group (being a number of Spire-affiliated retail and franchising brands) has sought to operate a Suzie Dukes branded store from those premises. SDNR continues to operate the Suzie Dukes store at North Rocks. It has not paid any of the plaintiffs’ fees in connection with the operation of that store.

35. Over the period since the Sale Agreement was signed, the relationship between Mr Mu and Mr Ly has deteriorated. That occurred for several reasons, including the fact that Mr Ly or companies associated with him have not paid rent due on the premises operated by them as Suzie Dukes stores and the limited time Mr Ly has spent discharging his obligations as an employee of SD Group. Mr Mu also complains that Mr Ly sought $7,000 urgently from Mr Mu to pay suppliers for equipment for a Doughkyo branded store. Mr Mu says he does not know how the money was used.

36. On 1 June 2023, Mr Ly sent Mr Mu an email which suggested that they agree that the sale documents be terminated. The email stated:

I wanted to take this opportunity to discuss our current joint venture and express some concerns that have been weighing on my mind recently. I believe that open communication is essential for the success of any partnership, and I value our professional relationship enough to address these matters directly.

Over the past eight months, we have embarked on an exciting journey together after my brand was acquired. However, I have noticed some challenges that have hindered our progress. Specifically, I have observed a lack of resources and a shortfall in the necessary capital investment to fully support our venture's growth potential. This has placed significant strain on our ability to meet our targets and maximize the opportunities presented to us. Considering these circumstances, I have been carefully reflecting on the future direction of our partnership. While I genuinely appreciate the efforts we have both put into this venture, I believe it would be in our best interests to explore alternative options at this time. With that said, I would like to propose a buyback via a return of funds paid arrangement that would allow us to part ways amicably, ensuring a smooth transition for both parties involved.

37. On 9 June 2023, Mills Oakley sent a notice to complete to the vendors under the Sale Agreement. At about the same time, Mr Mu realised that because he had not accepted the transfer of the Suzie Dukes business name to him, the name had been de-registered. He, therefore, arranged for the name to be registered to Spire.

37. On 12 July 2023, Mr Mu terminated Mr Ly’s employment with SD Group. As a consequence, under cl 16.2 of the Shareholders Agreement, Mr Ly became liable to transfer his shares in SD Group to Mr Mu for $1.00. It is unclear whether those shares were ever issued.

38. On 22 September 2023, SD Leasing terminated the licence with SD for the Minto premises. On 26 September 2026, the plaintiffs commenced these proceedings.

Specific Performance

40. One defence raised in the list response is that the Sale Agreement is not enforceable because it was not executed in counterparts. The same document was executed by all the parties. There is no merit in this defence. Clause 14.9 does not require as a condition of its validity that the Sale Agreement be executed in counterparts. Rather, it permits the agreement to be executed in counterparts and provides that if it is “the counterparts taken together constitute one and the same instrument”.

41. Not all the conditions precedent to the Sale Agreement were satisfied or waived in writing before the End Date (that is, 11 October 2022). However, it seems clear that the parties must have agreed by their conduct to vary the provisions of cl 4 of the Sale Agreement and to treat the contract as still on foot notwithstanding that not all the conditions precedent had been satisfied or waived by that date. After 11 October 2022, they continued to act as if the agreement, or parts of it, remained on foot. They continued to look for and to lease suitable premises to be operated as Suzie Dukes stores. More significantly, they reached an agreement in relation to the purchase price for the Assets and Spire paid the balance owing to MLy Corp and Mr Ly arranged for the trademarks to be transferred to Spire and took steps to transfer the business name to it. Consequently, on the uncontested evidence before the Court, Spire has paid the full purchase price for the “Assets” and, with Mr Ly’s agreement, some of those assets have been transferred to Spire. In view of those conclusions, I accept that there was an agreement between the parties which included the terms of the Sale Agreement, albeit as modified by the meeting on 5 December 2022. It is, therefore, unnecessary to consider an alternative case advanced by the plaintiffs based on conventional estoppel.

42. On the other hand, the Sale Agreement also contemplated that SD and SDNR would enter into franchise agreements with SD Group and would cause “the entity in control of the Kincumber shop to enter into a franchise agreement with SD Group”. However, it is apparent that SD cannot perform those obligations so far as the shops previously operated by it are concerned and there is no evidence that SD and SDNR can procure a franchise in respect of the Kincumber shop. Moreover, it is unclear which of the Assets continue to be held by any of the defendants and consequently what order for specific performance could be made. The plaintiffs seek to answer these points, at least in part, by relying on cl 14.2. They submit that to the extent that parts of the agreement cannot be performed, they can be severed. However, cl 14.2 is concerned with the enforceability of the terms of the agreement, not with the question whether specific performance should be ordered of only some of the terms of the agreement.

43. In my opinion, there is a more fundamental problem with an order for specific performance, and that is that the parties intended the Sale Agreement to operate as part of a broader relationship between the parties, which itself depended on a degree of co-operation and trust between Mr Ly and Mr Mu. It may have been one thing if the parties had focussed on the terms of the Sale Agreement and substantive performance of those. But instead, they largely ignored the terms of the Sale Agreement and focussed on putting into effect the broader relationship of which the Sale Agreement formed part. Even if attention is confined to the Sale Agreement, I do not think it is appropriate to order specific performance of part of that agreement, when other parts of the agreement have been varied and can no longer be performed and the agreement was intended to operate in a context in which Mr Ly would become a director and shareholder of SD Group. Those problems are exacerbated by the difficulty in identifying precisely what Assets remain in the defendants’ control and the defendants have provided no evidence or submissions to the Court on that issue. In my opinion, the plaintiffs should be left to their claim for damages.

Damages

44. In the normal course of events, damages for breach of contract are assessed as the amount that, so far as money can, will place the innocent party in the position it would have been in if the contract had been performed: Robinson v Harman (1848) 1 EXCH 850 at 855; 154 ER 363 at 365 per Parke B, applied in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13]. However, where the plaintiff is unable to prove that it would have earned a profit from the contract or the amount of that profit, it is entitled to recover amounts that it reasonably incurred in performing the contract, at least in the absence of the defendant proving that the contract would have been loss‑making: The Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54.

45. Whatever the precise terms of the agreement that arose from the Sale Agreement and the parties’ conduct, it is clear that as part of that agreement, the Assets would be transferred to Spire to enable it to license those assets to SD Group so that SD Group could carry on the franchise business. The plaintiffs do not seek to prove the profits that they would have earned from such a business. However, to the extent that Spire and SD Group incurred costs to put themselves in a position to comply with their obligations under the Sale Agreement, they are entitled to recover those costs from the defendants who were parties to the Sale Agreement. However, as will become apparent, most of the plaintiffs’ claim for damages does not arise from breaches of the Sale Agreement at all.

46. The plaintiffs also seek to recover the costs incurred by SD Leasing, Sharetea Leasing and ST Leasing (together, the Leasing Entities) in connection with leases of premises that were intended to be operated as Suzie Dukes Stores either by SD Group or by franchisees who were yet to be located. The plaintiffs frame that case as a claim in promissory estoppel. In Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 428-9, Brennan J explained the requirements of a promissory or equitable estoppel in these terms:

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

47. In the present case, it is said that by reason of the defendants’ conduct following entry into the Sale Agreement, the Leasing Entities reasonably adopted the assumption that the defendants or some of them would transfer the Assets to Spire so as to permit SD Group to enter into franchise agreements with them. As a result (1) SD Leasing acted to its detriment by incurring costs in respect of the lease of the premises in Minto; (2) Sharetea Leasing acted to its detriment by incurring costs in respect of the lease of premises in Fairfield West; (3) ST Leasing acted to its detriment by incurring costs in respect of the leases of premises in Macquarie Park, Prestons, Bateau Bay and Glenmore Park.

48. In my opinion, the claim based on promissory estoppel must fail. The Leasing Entities were not induced by any of the defendants’ conduct to assume that there was a particular legal relationship between them which, because of the defendants’ conduct, the defendants are estopped from denying. Any relevant relationship was between the Leasing Entities and SD Group or the franchisees who were ultimately located to operate the stores at the relevant premises.

49. Under the terms of the Sale Agreement as varied by the subsequent conduct of the parties, Spire had a contractual right to obtain the Assets which would be licensed to SD Group. On the basis of those rights, it might be said that Spire and SD Group made either express or implied representations to the Leasing Entities that they (Spire and SD Group) were in a position to operate (either themselves or through franchisees) Suzie Dukes stores at premises leased by those entities, and it is on that basis that the Leasing Entities incurred the costs that they did. And if that is correct, it may be arguable that Spire and SD Group’s damages include amounts for which the Leasing Entities were liable and were in a position to recover from Spire and SD Group. However, no such case was pleaded. Accordingly, it cannot be advanced now.

50. In my opinion, the position in relation to the Minto premises is different. Those premises were acquired by SD Leasing so that SD could operate a Suzie Dukes store from those premises. The premises were in fact licensed to SD and SD paid one instalment of the rent. SD Leasing should be entitled to recover the amount it spent as damages for breach of the licence agreement. Alternatively, SD is estopped from denying that there was an agreement by which SD would lease the premises from SD Leasing. That estoppel arises from the fact that Mr Ly knew and I think it is reasonable to infer encouraged Mr Mangal to negotiate a lease of the premises on the basis that they would be leased to SD for the purpose of operating a Suzie Dukes store.

51. Against that background, it is possible to turn to the plaintiffs’ specific claims for damages.

52. The plaintiffs claim external advertising costs of $1,980. It appears that the amount relates to two invoices issued by Chew Crew. It is unclear what the work was for. The invoices were paid by Sharetea. It is unclear the plaintiffs could recover an amount paid by it. In my opinion, this claim must fail.

53. The plaintiffs claim a total amount of $113,357.78 in respect of the Minto premises. That amount consists largely of the costs of equipment for that store and rent paid by SD Leasing. In my opinion, SD Leasing is entitled to judgment for that amount against SD, which was the licensee of that store. The lease of the premises to SD Leasing was entered into and the costs were incurred in the expectation, encouraged by Mr Ly, that SD would take a lease of the premises for the purposes of operating a Suzie Dukes store. Moreover, SD took a licence of those premises, although the precise terms of the licence are unclear. SD Leasing is entitled to recover the amount it has incurred either as damages for breach of the licence or as an amount to compensate it for the detriment it has suffered in respect of the estoppel arising from SD’s conduct and SD Leasing’s reliance on it.

54. The balance of the damages claimed by the plaintiffs fall into five categories.

55. First, it appears that the Leasing Entities (I say “appears” because it is not clear from the plaintiffs’ submissions which of the plaintiffs makes the claim) claim the rent they have paid for the various premises they leased for the purposes of Suzie Dukes stores.

56. Second, the plaintiffs claim design fees for the various stores. According to evidence given by Mr Mu, the amounts were incurred by the relevant Leasing Entities.

57. Third, the plaintiffs claim various other set-up costs. Again, according to evidence give by Mr Mu, the amounts were incurred by the relevant Leasing Entities. It is also worth observing that, judging by a description of the items, many of the costs appear to relate to the bubble tea business.

58. Fourth, the plaintiffs claim legal fees in connection with various statutory demands that were issued against the Leasing Entities.

59. Lastly, the plaintiffs claim the amount of $50,000 paid by Spire Concepts to MLy Corp for the Assets.

60. In my opinion, the plaintiffs must fail in respect of claims falling within the first four categories. The difficulty with each of those claims is that it is made by the Leasing Entities for amounts incurred by those entities. None of those entities was a party to the Sale Agreement. Consequently, none of them is entitled to claim damages for breach of that agreement. For the reasons I have given, the only other claim advanced is one based on estoppel. However, as I have explained, none of the Leasing Entities assumed that a particular legal relationship existed between them and any of the defendants. Rather, they assumed that a legal relationship existed between the defendants and Spire and SD Group. That assumption cannot form the basis of an estoppel in favour of the Leasing Entities.

61. In addition, I do not accept that the plaintiffs would be entitled to recover the legal costs they incurred in connection with the statutory demands. The Leasing Entities were the parties to the relevant leases and liable to make the lease payments. There is no evidence before the Court that they were unable to pay the rent because of a breach of some obligation by the defendants.

62. I accept that the Spire is entitled to recover the $50,000 from the defendants (other than SD) as damages for breach of the Sale Agreement. Under the terms of the Sale Agreement, the sellers were obliged to transfer the Assets to Spire for $100,000. That was a severable obligation that was not altered by the subsequent agreement or conduct of the parties except for how the $100,000 was to be paid or to be treated as having been paid. Accordingly, Spire paid the full purchase price for the Assets but has not received all of them. Of most significance, it has not received the Confidential Information including the recipes. In my opinion, $50,000 is a reasonable amount to allow as damages for that breach.

Orders

63. The plaintiffs have only been partially successful. In particular, the Leasing Entities apart from SD Leasing in respect of the lease of the Minto premises were not successful in any of their claims. In those circumstances, in my opinion, it is appropriate that the plaintiffs only recover half their costs.

64. Accordingly, the orders of the Court are:

1. Judgment in favour of the third plaintiff against the first defendant in the sum of $113,357.78;

2. Judgment in favour of the first plaintiff against the second, third, fourth and fifth defendants in the sum of $50,000.00;

3. The defendants pay 50 percent of the plaintiffs’ costs of the plaintiffs’ claim as agreed or assessed;

4. The cross-claim be dismissed with costs.

**********

Decision last updated: 19 April 2024