Tan Wee Fong v Denieru Tatsu: Wrongful Termination & Liquidated Damages in Franchise Agreement

Tan Wee Fong, Ng Seng Guan, and Heng Boon Thai sued Denieru Tatsu F&B Holdings (S) Pte Ltd in the High Court of Singapore on 4 July 2008, for wrongful termination of a country master franchise agreement. The plaintiffs claimed damages, loss of profits, and refunds of fees. Denieru Tatsu counterclaimed for liquidated damages. The court, presided over by Belinda Ang Saw Ean J, found that the plaintiffs had breached the Confidentiality and Non-Competition Agreement, entitling Denieru Tatsu to terminate the Country Master Partner Agreement. The court dismissed the plaintiffs' claim for wrongful termination and Denieru Tatsu's counterclaim for liquidated damages, awarding only nominal damages of $10 to Denieru Tatsu for the breach. The court ordered Denieru Tatsu to repay $77,541.60 to the plaintiffs for undelivered goods.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Judgment for Defendant; Claim Dismissed; Counterclaim Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Malaysian citizens sued Denieru Tatsu for wrongful termination of a country master franchise agreement. The court dismissed the claim and counterclaim.

1.7 Decision Date

30 December 2009

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Tan Wee Fong	Plaintiff	Individual	Claim Dismissed	Lost	N Sreenivasan of Straits Law Practice LLC Heng Wangxing of Straits Law Practice LLC
Ng Seng Guan	Plaintiff	Individual	Claim Dismissed	Lost	N Sreenivasan of Straits Law Practice LLC Heng Wangxing of Straits Law Practice LLC
Heng Boon Thai	Plaintiff	Individual	Claim Dismissed	Lost	N Sreenivasan of Straits Law Practice LLC Heng Wangxing of Straits Law Practice LLC
Denieru Tatsu F&B Holdings (S) Pte Ltd	Defendant	Corporation	Counterclaim Dismissed	Neutral	Kelvin Tan of Mathew Chiong Partnership Lawrence Lim of Mathew Chiong Partnership

3. Judges

Judge Name	Title	Delivered Judgment
Belinda Ang Saw Ean	Judge	Yes

4. Counsels

Counsel Name	Organization
N Sreenivasan	Straits Law Practice LLC
Heng Wangxing	Straits Law Practice LLC
Kelvin Tan	Mathew Chiong Partnership
Lawrence Lim	Mathew Chiong Partnership

4. Facts

Plaintiffs purchased a country master franchise from the defendant.
The Country Master Partner Agreement and Confidentiality and Non-Competition Agreement were signed on 20 April 2008.
The defendant terminated the Country Master Partner Agreement due to the plaintiffs' breach of the non-solicitation clause.
The plaintiffs allegedly solicited the defendant's employees, Mike and Elaine.
The plaintiffs paid US$205,000 as an initial upfront fee, which was stated to be non-refundable.
The plaintiffs paid S$77,541.60 for food products and packaging material that were never delivered.

5. Formal Citations

Tan Wee Fong and Others v Denieru Tatsu F&B Holdings (S) Pte Ltd, Suit 461/2008, [2009] SGHC 290

6. Timeline

Date	Event
2007-12-01	Negotiations to purchase the country master franchise commenced.
2008-04-20	Country Master Partner Agreement and Confidentiality and Non-Competition Agreement were signed.
2008-05-01	Country Master Partner Agreement and Confidentiality and Non-Competition Agreement were dated.
2008-05-06	Tan Wee Fong solicited the employment of Denieru Tatsu F&B Holdings (S) Pte Ltd's employees.
2008-05-09	Tan Wee Fong attempted to solicit the employment of Elaine Yow Yih Tyng via email.
2008-05-26	Plaintiffs paid $77,541.60 to the defendant for food products and packaging material.
2008-05-29	Denieru Tatsu F&B Holdings (S) Pte Ltd gave written notice of immediate termination of the Country Master Partner Agreement.
2008-07-04	Plaintiffs sued the defendant for wrongful termination of the Country Master Partner Agreement.
2009-12-31	Judgment issued.

7. Legal Issues

Wrongful Termination of Contract
- Outcome: The court held that the termination was not wrongful because the plaintiffs breached the non-solicitation clause in the Confidentiality and Non-Competition Agreement.
- Category: Substantive
- Sub-Issues:
  - Breach of non-solicitation clause
  - Interpretation of termination clause
- Related Cases:
  - [2007] 4 SLR 413
  - [2009] 3 SLR 883
  - [2009] 3 SLR 925
  - [2009] SGCA 54
Enforceability of Liquidated Damages Clause
- Outcome: The court held that the liquidated damages clause was unenforceable as a penalty.
- Category: Substantive
- Sub-Issues:
  - Penalty clause
  - Genuine pre-estimate of loss
- Related Cases:
  - [1915] AC 79
Relief Against Forfeiture
- Outcome: The court held that there was no basis to grant equitable relief against forfeiture because there was no evidence of unconscionability on the part of the defendant.
- Category: Substantive
- Sub-Issues:
  - Unconscionability
  - Equitable relief
- Related Cases:
  - [1954] 1 QB 476

8. Remedies Sought

Damages for Wrongful Termination
Loss of Profits
Refund of Partnership and Outlet Fees
Refund for Undelivered Goods

9. Cause of Actions

Breach of Contract
Wrongful Termination

10. Practice Areas

Commercial Litigation
Franchise Disputes

11. Industries

Food and Beverage

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Dyno-rod Plc v Reeve	N/A	Yes	[1999] FSR 148	N/A	Cited to distinguish the approach to restrictive covenants in franchise agreements versus employer-employee contracts.
Hellmann Insurance Brokers v Peterson	N/A	Yes	[2003] NSWSC 242	N/A	Cited for the definition of 'solicitation' in the context of a clause prohibiting the solicitation of clients.
R v Laws	N/A	Yes	[2000] NSWSC 880	N/A	Cited to define the meaning of 'solicitation'.
Sweeney v Astle	N/A	Yes	[1923] NZLR 1198	N/A	Cited to define the meaning of 'solicitation'.
RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd	Court of Appeal	Yes	[2007] 4 SLR 413	Singapore	Cited for the principles regarding express termination clauses in contracts.
Sports Connection Pte Ltd v Deuter Sports Gmbh	Court of Appeal	Yes	[2009] 3 SLR 883	Singapore	Cited for the difference in remedial consequences under express contractual provisions and common law termination rights.
Fu Yuan Foodstuff Manufacturer Pte Ltd v Methodist Welfare Services	Court of Appeal	Yes	[2009] 3 SLR 925	Singapore	Cited for the principles regarding express termination clauses in contracts.
Chua Chian Ya v Music & Movements (S) Pte Ltd	Court of Appeal	Yes	[2009] SGCA 54	Singapore	Cited for the principles regarding express termination clauses in contracts.
Man Financial (S) Pte Ltd v Wong Bark Chuan David	N/A	Yes	[2008] 1 SLR 663	Singapore	Cited for the four situations entitling an innocent party to terminate a contract and factors to determine if a contractual term is a condition.
Financings Ltd v Baldock	English Court of Appeal	Yes	[1963] 2 QB 104	N/A	Cited to show that the only remedy available to the innocent party is the recovery of damages for unperformed accrued obligations up to the date of termination.
Lombard North Central Plc v Butterworth	N/A	Yes	[1987] QB 527	N/A	Cited to illustrate that non-payment breached a condition of prompt payment.
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd	English Court of Appeal	Yes	[1962] 2 QB 26	N/A	Cited for the 'Hongkong Fir approach' where the breach of a term deprives the innocent party of substantially the whole benefit which it was intended to obtain from the contract.
Multiservice Ltd v Marden	N/A	Yes	[1979] Ch 84	N/A	Cited for the observations on the general plea of unconscionability.
Lee Chee Wei v Tan Hor Peow Victor	N/A	Yes	[2007] 3 SLR 537	Singapore	Cited for the position on deposits and advance payments.
Lim Lay Bee v Allgreen Properties Ltd	N/A	Yes	[1999] 1 SLR 471	Singapore	Cited for the position on advance payments.
Dies v British and International Mining and Finance Corporation Limited	N/A	Yes	[1939] 1 KB 724	N/A	Cited for the position on advance payments.
Ng Gian Hon v Westcomb Securities Pte Ltd and others	Court of Appeal	Yes	[2009] 3 SLR 518	Singapore	Cited for the observation that the courts would ordinarily refrain from rewriting contracts.
Jobson v Johnson	N/A	Yes	[1989] 1 WLR 1026	N/A	Cited for the distinction between the jurisdiction to strike down penalties and the jurisdiction to relieve against forfeiture.
Lancore Services Ltd v Barclays Bank plc	N/A	Yes	[2008] EWHC 1264	N/A	Cited for the rule on penalty clauses is inapplicable to clauses which are not concerned with specifying the consequences of the breach but with defining the parties’ rights and obligations.
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Ltd	N/A	Yes	[1915] AC 79	N/A	Cited for the principles in determining whether the disputed clauses constitute unenforceable penalties.
Hong Leong Finance Ltd v Tan Gin Huay	Court of Appeal	Yes	[1999] 2 SLR 153	Singapore	Cited for the principles in determining whether the disputed clauses constitute unenforceable penalties.
Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana	N/A	Yes	[1983] 2 AC 69	N/A	Cited for the court’s equitable jurisdiction to grant relief from forfeiture was against the forfeiture of property and the transfer or creation of proprietary or possessory interests as opposed to mere contractual rights.
Sport International Bussum BV v Inter-Footwear Ltd	N/A	Yes	[1984] 1 WLR 776	N/A	Cited for the court’s equitable jurisdiction to grant relief from forfeiture was against the forfeiture of property and the transfer or creation of proprietary or possessory interests as opposed to mere contractual rights.
On Demand Information plc v Michael Gerson (Finance) plc	N/A	Yes	[2003] 1 AC 368	N/A	Cited for the court’s equitable jurisdiction to grant relief from forfeiture was against the forfeiture of property and the transfer or creation of proprietary or possessory interests as opposed to mere contractual rights.
Pacific Rim Investments Pte Ltd v Lam Seng Tiong	Court of Appeal	Yes	[1995] 3 SLR 1	Singapore	Cited for the position that the power to grant relief from forfeiture was confined to contracts connected with interests in land.
Triangle Auto Pte Ltd v Zheng ZI Construction Pte Ltd	N/A	Yes	[2001] 1 SLR 370	Singapore	Cited for the view that the power extended to cases involving sale of goods.
Metro Alliance Holdings & Equities Corp v West LB AG	N/A	Yes	[2008] 1 SLR 193	Singapore	Cited for the question of whether relief from forfeiture might be granted in contracts unconnected with any interests in land.
United Eagle Ltd v Golden Achievement Ltd	N/A	Yes	[1997] AC 514	N/A	Cited for the rejection of the notion that the court’s jurisdiction to grant relief against contractual penalties and forfeitures was “unlimited and unfettered”.
Stockloser v Johnson	English Court of Appeal	Yes	[1954] 1 QB 476	N/A	Cited for the equitable jurisdiction to order relief against forfeiture of instalments already paid should it prove oppressive and unconscionable for the seller to keep the instalments.
Workers Trust Bank Ltd v Dojap Ltd	N/A	Yes	[1993] AC 573	N/A	Cited as a contrasting case on the recovery of a deposit at common law and is not helpful to the discussion on the court’s equitable jurisdiction to grant relief against forfeiture.
Howe v Smith	N/A	Yes	(1884) 27 Ch D 89	N/A	Cited for the invariable judicial approach to forfeitable deposits at common law.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
No applicable statutes

15. Key Terms and Keywords

15.1 Key Terms

Country Master Franchise
Non-Solicitation Clause
Liquidated Damages
Penalty Clause
Relief Against Forfeiture
Initial Upfront Fee
Non-Refundable
Termination Clause
Breach of Contract
Unconscionability

15.2 Keywords

franchise agreement
wrongful termination
liquidated damages
non-solicitation
relief against forfeiture

17. Areas of Law

Area Name	Relevance Score
Breach of Contract	90
Contract Law	85
Liquidated Damages	80
Relief Against Forfeiture	75
Remedies	70
Franchise Law	65
Chancery and Equity	40
Estoppel	30

16. Subjects

Contract Law
Franchise Law
Equity
Commercial Litigation