HO SUNG MING v. CHU KA WAI WALTER

DCCJ 1702/2019

[2022] HKDC 1300

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1702 OF 2019

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JUDGMENT

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1.  This case concerns the non-transfer of 20% of shares of a company (the “Shares”) named clingko Limited (the “Company”) by the Defendant to the Plaintiff. The Plaintiff claims that the Defendant had acted in repudiatory breach of their agreement by failing to transfer the Shares to him, which was accepted by the Plaintiff in terminating the agreement. The Plaintiff asked for damages in the amount of HK$1 million, representing the amount he invested in the Company.

2.  The Plaintiff was represented by counsel, Ms Phyllis Lee, and the Defendant was represented by counsel, Ms Jacquelyn Ng.

BACKGROUND

3.  The Plaintiff, also known as Kandie, is a retired shoe merchant. His wife, Fong Chor Yuk Connie (“Connie”), has worked as an office administrator. Through his wife, the Plaintiff got to know her business partner, Leung Kin (“Kent”). Connie and Kent started their factory in the Mainland for the manufacture of toys. Connie was responsible for the administration, operation and finance side of the business, whereas Kent was responsible for its product design, and sales and marketing.

4.  The Defendant has a background in electronic engineering, and has designed and invented electronic products since 1990. In 2005, the Defendant established BDNC Holdings Limited (“BDNC”), specializing in electroacoustic technology and licensed its patented technology to different companies across the globe. In 2006, BDNC successfully attracted investors to inject capital in the sum of HK$8.2 million into it, in exchange for 80% of its shares. The Defendant remains to be a 20% shareholder of BDNC.

5.  In or around November 2016, Kent was introduced to the Defendant through Zhong Chun Wen (“Richard”) who was a friend of the Defendant and a supplier of speakers. At the time, the Defendant shared with them his idea of inventing a high-resolution tempered glass diaphragm speaker with the use of the 4^th best sound conducting material, after diamond, Beryllium and sapphire (the “Speaker”), which was believed to be a ground-breaking idea. In order to finance this invention, they came up with the idea of setting up a company to obtain funding from the Hong Kong government by joining the incubation program of the Hong Kong Science and Technology Park (the “Science Park”).

6.  Public funding aside, they also intended to tap into the funding from private investors. Kent would bring in potential investors by introducing them to the Defendant, and to listen to the ‘extreme performance’ of the prototype of the Speaker. Amongst the potential investors Kent brought in for introduction, Connie was one of them who relayed this investment opportunity to the Plaintiff at a later stage. Kent also introduced Kenneth Chau (“Kenneth”), a veteran angel investor in the technology field, to the Defendant as an early investor.

7.  On 14 November 2017, Kent took the Defendant to Accolade Corporate Services Ltd (“Accolade”) to set up the Company, with the Defendant being its sole shareholder and sole director.

8.  The initial understanding was that the Company would be founded by Kent, Kenneth, Richard, and the Defendant, with each of them being responsible for different areas of work. However, Kenneth first withdrew from investing in the Company.

9.  In or around March 2018, the Company was successfully admitted into the incubation program of the Science Park.

10.  On 21 March 2018, a celebratory dinner was held at a Korean restaurant, attended by Kent, Connie, Kenneth, Richard, a designer named Bowie, and Chan Kwun Kit (陳冠傑) (“Kit”). It is the Defendant’s case that whilst shareholding of the Company was not discussed at the dinner, he provided a document entitled ‘拋磚引玉，舉一反三’ to illustrate a possible shareholding framework for the Company (the “Proposed Shareholding Framework”), enlisting proposals as to how the shares of the Company were to be allocated to different persons and their respective roles in the Company.

11.  On 2 May 2018, Richard sent a WeChat message to Kent regarding the financial needs of the Company. Kent replied that he would meet up with the Defendant later that night, and he would call Richard later.

12.  On or around 10 May 2018, with the assistance of the Plaintiff, the Company purchased its office insurance policy.

13.  By a WeChat message on 15 May 2018 from Kent to the Defendant, Kent stated that the Company’s shareholding should be: 40% to the Plaintiff as investor, 20% to the Defendant for research and development, 20% to Richard, and 20% to Kent for sales and marketing.

14.  However, Richard later also withdrew from this plan. There is no evidence as to when exactly Richard left.

15.  By an unsigned and undated ‘incubate staff record’ of the Hong Kong Science and Technology Parks Corporation (the “Staff Record”), it is recorded that the Plaintiff, the Defendant and Kent started to work at the Company on 18 May 2018 as COO, R&D Director, and Sales & Marketing Director respectively. The Staff Record was updated as of 12 June 2018. It is the Plaintiff’s evidence that the start date was backdated, to fulfil requirements as set by the Science Park’s incubation program.

16.  There is a dispute as to when the Plaintiff first met the Defendant and decided to invest in the Company. What is not disputed is that an oral agreement was entered into by at least the Plaintiff and the Defendant in May 2018 to invest HK$1 million in the Company in return of the Shares (the “Agreement”).

17.  On 27 May 2018, the Plaintiff provided 2 cheques post-dated to 9 June 2018 totalling at HK$1 million drawn in favour of the Company to the Defendant (the “Cheques”). A letter of undertaking was signed by the Defendant on the same date (the “Letter of Undertaking”), which stated, inter alia:

“本人屈家偉(CHU KA WAI WALTER)， 為香港的有限公司 Clinkgo Limited (“Clinkgo”) 現時的唯一股東及董事，特向何宋明先生(“何先生”) 鄭重承諾，接納何先生以港幣壹百萬元(HKD1,000,000)作為投資，換取Clinkgo 百分之二十的股份，即從現時已發行的1000股中，轉讓200股予何先生名下。

何先生已向Clinkgo開出支票期票兩張共一百萬港元，本公司定會在入票後兩星期內，辦妥一切有關的股份轉讓事宜。”

18.  On 29 May 2018, with the assistance of the Plaintiff, the Company opened a bank account at DBS Bank (Hong Kong) Limited with account no.000569646 (the “Bank Account”), with the Plaintiff and the Defendant being its joint signatories.

19.  On 4 July 2018, the Cheques were deposited into the Bank Account and were cleared.

20.  According to the Letter of Undertaking, 18 July 2018 was the deadline for the transfer of the Shares. However, the Shares were not transferred.

21.  In July, the Company was able to line up with the May Cheong Group, one of the biggest zinc die casting factory, to discuss potential investment in the Company. The investment by the May Cheong Group did not materialize, and the Defendant blamed it on the improper and unprofessional conduct of Kent.

22.  On 20 August 2018, Accolade emailed Connie in reply of her inquiry on the preparatory steps required for the transfer of the Shares, which included (a) the provision of a copy of the new shareholder’s ID and address proof; (b) the attendance by the new shareholder to sign documents at Accolade; and (c) the provision of the latest audited financial statements and updated management accounts.

23.  It is the Plaintiff’s case that, on 22 August 2018, he presented a hardcopy of this email to the Defendant, urging the Defendant to transfer the Shares to him (the “August Meeting”). However, the Defendant indicated that he would need to check with his friends for legal advice.

24.  In the same meeting, Kent told the Defendant seriously and clearly that the transfer of his 20% of shares of the Company should be completed before he came back from his business trip in September.

25.  In early September 2018, Kent left Hong Kong to attend the TechCrunch exhibition in San Francisco. After his return to Hong Kong, on 18 September 2018, Kent and the Defendant had a bitter quarrel, which was later joined by the Plaintiff and Connie (the “September Meeting”). The parties gave different explanations as to the causes of their quarrel.

26.  In late September or early October, the Defendant prepared to layoff Kent as an employee of the Company. The Defendant believed that it would not be in the Company’s interest to rely on him for its future development.

27.  In early October 2018, a breakfast meeting was held, attended by the Plaintiff, the Defendant and Kenneth (the “October Meeting”). The Defendant proposed to reduce Kent’s share from 20% to 2.5%, which was rejected by the Plaintiff.

28.  On 13 October 2018, the Defendant sent a draft proposal to the Plaintiff entitled ‘希聲有限公司予何宋明先生有關已注入資金的安排選項’ (the “Option Plan”). By the Option Plan, the Defendant demanded the Plaintiff to choose 1 of the 4 options in dealing with his invested HK$1 million by 12 November 2018. Or else, the Defendant would pick an option or make a plan for the Plaintiff. The 4 options are:

(a)  Option 1: keep the original plan by exchanging for the Shares;

(b)  Option 2: refund of HK$500,000 within 7 days, and the remaining HK$500,000 in exchange for 10% of the shares of the Company;

(c)  Option 3: refund of HK$500,000 within 7 days, with the remaining HK$500,000 to be returned within 1 year; and

(d)  Option 4: the HK$1 million invested be treated as paying for non-recurring engineering fees, and the Defendant shall provide the detailed design of the Speaker, 20 engineering samples and customized moulds to the Plaintiff.

29.  The Plaintiff rejected the Option Plan.

30.  It is stated in the Option Plan that options 2-4 were only provided because the Plaintiff may have lost interest in participating in the future development of the Company.

31.  On 24 October 2018, the Defendant sent a message to the Company’s WeChat group, with its members being the Plaintiff, the Defendant, Kent and Connie, that he had appointed Wendy Wai (“Wendy”) to take over all administration work of the Company and requested the Plaintiff, Kent and Connie to hand over their work to her. It reads:

“與此同時， Wendy也會安排大家取回在辦公室的一切私人物品，作剩下的支出報銷，及(煩請)Kandie接收交回的火炭鎖匙(我並沒有在火炭的業主的任何聯絡方法和紀錄⋯⋯)”

32.  On the same date, the respective email accounts of the Plaintiff, Connie and Kent were also locked.

33.  On 25 October 2018, the Defendant sent 2 draft agreements to Kent, and asked him to execute the same within 1 month:

(a)  In the first agreement entitled ‘投資者介紹人費協議’, it provides that for investors introduced by Kent, he will be rewarded with 10% of the sum procured, or 10% of the shares invested; and

(b)  In the second draft agreement entitled ‘希聲籌辦初期的參與者對其時間精力的付出的酬謝的接受確認書’, it provides that Kent is rewarded for his assistance provided to the Company by receiving 2.5% of the shares of the Company or HK$125,000.

Kent did not reply to any of these.

34.  On 1 November 2018, the Plaintiff had another meeting with the Defendant (the “November Meeting”), and proposed that the Defendant should pay him HK$3 million in compensation.

35.  On 16 November 2018, the Defendant requested the Plaintiff to provide his address for the purpose of the transfer of Shares.

36.  In early December 2018, the Defendant made an application to DBS to remove the Plaintiff as one of the signatories of the Bank Account.

37.  On 15 January 2019, the Defendant reported to the police that he received a phone call, threatening him to return funds to the Plaintiff.

38.  On 21 January 2019, the Defendant reported to the police that Kent stole his notebook computer.

39.  On 25 February 2019, the Plaintiff, the Defendant, Kenneth and Connie met again. The Plaintiff’s request for the return of his HK$1 million was rejected by the Defendant.

40.  In 2021, 115 and 35 newly issued shares of the Company were respectively allotted to Atom Xquare Limited and Richard.

Issues in Dispute

41.  The parties provided a joint statement of issues in dispute. I have confirmed with Ms Lee and Ms Ng that the list of issues may be narrowed down as follows:

(a)  What was the contents of the Agreement, and whether Kent was a party to it, on top of the Plaintiff and the Defendant;

(b)  Whether the Defendant has refused and/or failed to transfer the Shares to the Plaintiff or there are reasons not due to the fault of the Defendant; and

(c)  Whether the Defendant had committed a repudiatory breach of the Agreement by failing and/or refusing to transfer the Shares to the Plaintiff on 18 July 2018, which was accepted by the Plaintiff.

WITNESSES

42.  The Plaintiff called himself, Connie and Kent as his witnesses, whereas the Defendant called himself and Kit as his witnesses.

43.  The Plaintiff had a poker face throughout his examination. He displayed very little emotion, and had little body language. I take these as signs of his business maturity and dexterity trained over years of running business. The Plaintiff is very well prepared, and he gave evidence in a composed and meticulous manner. He provided fast and efficient verbal response to questions, and his answers were both straightforward and to the point.

44.  Connie, as an administrator, was a detail-oriented person. She was keen on answering questions, but was never too keen. Her body language showed that she was very attentive to the details of the questions, and she very much wanted to provide a full and accurate answer to them. She had very efficient use of language, so much so that it reminded one of her making a report of business data. Her responses were prompt, relatively short and gave an impression of being accurate.

45.  Kent had a strong character. He did not hide from his emotion, be it frustration, anger or discontent. His evidence was largely logical, and he provided a fairly complete story of the rise and fall of the business relationship among the Plaintiff, the Defendant and him. He could be impulsive, but it did not make his evidence any less reliable.

46.  The Defendant took great pride in his invention, and he described himself as someone who has changed the lives of human beings. He was proud of the 30 odd patents he registered, and his success in finding investors who put money into his business. When the Defendant gave evidence, he displayed highly exaggerated body gesture (eg by fully extending his arms to two sides wide open, slowly turning his head, with a light-hearted attitude), in such a playful way one would rarely see in a Courtroom. The Defendant enjoyed being on show, and he had an inclination to turn the cross examination into one. Very often, after he heard the questions from the Plaintiff’s counsel, he would give a curious and somewhat sneering smile to her, followed by his display of wit – twisting the questions, narrowing the scope the questions, modifying the questions, adding qualifiers after qualifiers to the questions. He did that not only to the questions, but also to his answers. He said one thing, and then diced it, removed half of it, and qualified the rest of it. His answers became so obscure to an extent that the Court had to remind him that he should provide answers to the Plaintiff’s counsel’s questions, not to the questions that he wanted to answer. Ms Lee submitted that the Defendant was highly evasive in giving evidence. I accept that he was evasive. I also note that the Defendant held his work and ability in very high regard. This may well explain why the one-hour-slaughter of the Defendant with foul language (as below) became so destructive to the relationship among the Plaintiff, the Defendant and Kent. I have reminded myself the relevant legal principles in assessing one’s credibility, and the limitation of making factual findings by relying on credibility as submitted by Ms Ng.

47.  Kit was a relatively unimportant witness, and the cross examination on him lasted for less than 5-10 minutes. He gave his answers largely in a direct manner.

APPLICABLE LEGAL PRINCIPLES

48.  There is no serious dispute on the applicable legal principles in the present case.

Terms of an Oral Contract

49.  In determining whether an agreement has been made and what the terms are, the law applies an objective test. However, in respect of an oral agreement, evidence of subjective understanding is pertinent insofar as it tends to show whether, objectively, an agreement was reached and, if so, on what terms: Mr Jeffrey Ross Blue v Mr Michael James Wallace Ashley [2017] EWHC 1928 (Comm), §§63-64 per Leggatt J (as Lord Leggatt then was).

50.  Subsequent acts of the parties are admissible, and may well be “very telling” and “very relevant” in certain cases, to show whether certain terms had been incorporated into the subject contract: Chitty on Contracts (34^th Ed), §15-060.

Stipulation as to Time

51.  Whether a time limit is of the essence of a contractual provision is a question of interpretation of the provision in the context of the contract as a whole. The question is whether the time specified in the particular clause was (expressly or by necessary implication) intended by the parties to be essential, e.g. because they needed to know precisely what were their respective obligations: Chitty §27-029.

Repudiatory Breach

52.  What will amount to a repudiation of the contract will depend upon the terms which the parties have agreed and the relative importance which they have placed on them: Chitty §39-227.

53.  The determination of whether there has been a repudiation which entitles the innocent party to terminate a contract is whether looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether to refuse to perform the contract: Eminence Property Developments v Heaney [2010] EWCA Civ 1168 per Etherton LJ.

54.  As Chitty stated at §27-048:-

“…An absolute refusal by one party to perform his side of the contract will entitle the other party to terminate further performance of the contract, as will also a clear and unambiguous assertion by one party that he will unable to perform when the time for performance should arrive. Short of such an express refusal or declaration, however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. The renunciation is then evidenced by conduct….”

55.  In other words, “the renunciation must be ‘made quite plain’” and be “unequivocal”: Chitty §27-050.

56.  However, it is not necessary to show that the party alleged to have repudiated should have had an actual intention not to fulfil the contract. He may intend in fact to fulfil it, but may be determined to do so only in a manner substantially inconsistent with his obligations and not in any other way: The Nanfri [1979] AC 757 per Lord Wilberforce.

Acceptance of Repudiation

57.  Breach of an agreement would not automatically bring the agreement to an end. The innocent party must accept the repudiation before the agreement is terminated and the contracting parties are discharged from further performance of the agreement: Chitty §24-013.

58.  In Chao Keh Lung v Don Xia [2004] 2 HKLRD 11, the Court of Appeal has set out the principles on acceptance of breach at §§41-44:-

(1)  Where a party has repudiated a contract, the aggrieved party has an election to accept the repudiation or to affirm the contract.

(2)  Acceptance of repudiation requires no particular form but must be clearly and unequivocally communicated by words or conduct to the repudiating party that the aggrieved party is treating the contract at an end. However, a communication does not have to be couched in the language of acceptance.

(3)  The communication must also unequivocally convey that the aggrieved party is treating the contract at an end because of the repudiating party’s repudiatory breach.

THE AGREEMENT

59.  It is the Plaintiff’s case that Connie first brought the Plaintiff to meet with the Defendant on 8 May 2018, and the Plaintiff became interested in the investment opportunity. In the second meeting on 27 May 2018, in the presence of the Plaintiff, Connie, Kent and the Defendant, the Plaintiff and the Defendant reached an oral agreement to the effect that:

(a)  The Plaintiff shall invest an amount of HK$1 million in the Company;

(b)  The Plaintiff shall pay by way of post-dated cheques;

(c)  The Defendant shall transfer 20% of the issued shares of the Company to the Plaintiff, within 14 days after the presentation of the cheques; and

(d)  The Defendant would have the option to invest another HK$1 million in the Company in exchange for an additional 20% of shares of the Company if the Defendant was able to launch the Speaker in 6 months.

60.  It is also the Plaintiff’s case that the Agreement was partly evidenced by the Letter of Undertaking, and there was a common understanding between the parties that the Defendant would transfer 20% and 40% of the shares of the Company to Kent and to an accounting firm for custody respectively.

61.  The Defendant’s case is that on 7 May 2018, the Plaintiff, the Defendant and Kent entered into a tripartite oral agreement to the following effect:

(a)  The Plaintiff shall invest HK$1 million into the Company in exchange for 20% of its issued shares, out of which HK$800,000 shall be used for product development, and the remaining HK$200,000 shall be used for the operation of the Company;

(b)  Kent shall be responsible for marketing and seeking investors with a target amount of HK$4 million. In exchange, he shall be given 20% of the shares of the Company;

(c)  The Defendant shall be responsible for product design and development, and would act as the ‘technical key person’ in fulfilment of a requirement of the Science Park. In exchange, the Defendant shall be given 20% of the shareholding of the Company; and

(d)  The Defendant shall in the meantime hold the other 40% of the shares of the Company, and shall in due course transfer such shares to other investors.

Number of Parties to the Agreement

62.  In my judgment, the Agreement reached was a tripartite agreement among the Plaintiff, the Defendant and Kent.

63.  The Plaintiff’s case on this issue is contradictory. In the Statement of Claim, it was pleaded that only the Plaintiff and the Defendant were contracting parties to the Agreement. However, in the Reply, it was pleaded that ‘the Plaintiff, the Defendant and Kent’ agreed among themselves that (i) Kent’s 20% shareholding was in return for his participation as sales and marketing director; (ii) the Defendant’s 20% shareholding was in return for his participation as its research and development director; and (iii) the Defendant would transfer the remaining 40% shares to an accounting firm for future investors.

64.  Indeed, it is the evidence of the Plaintiff’s own witness, Kent, that the Agreement entered into was a tripartite agreement.

65.  The Agreement was reached in an oral discussion among three business partners on the shareholding structure of the Company. Short of any reason to suggest the contrary, the natural inclination is that the parties would enter into one, as opposed to more than one, agreement in defining the shareholders’ rights and obligations.

66.  Further, without any justification, it is highly unlikely that the Plaintiff and the Defendant would enter into an oral bipartite agreement containing only some of his contracting obligations (e.g. to transfer shares), whereby leaving the rest (e.g. to carry out research and development) to a separate tripartite agreement with an additional party.

67.  This finding is in line with the overall background that the Plaintiff only knew the Defendant for a short period of time before he made his investment. It is the Plaintiff’s case that his investment was made based on an understanding that Kent would receive 20% of the Company’s shares, and would be involved in its operation. If the involvement and shareholding of Kent is an important background of the Plaintiff’s investment, there is no reason why the Plaintiff would not have intended to include terms governing Kent’s rights and obligations in the same agreement.

Date of the Agreement

68.  As to the date of the Agreement, it is my clear view it was reached on 27 May 2018.

69.  First, in the Defendant’s witness statement, all he said was that the Agreement was reached on a ‘certain day’ in May 2018. Obviously, he could not recall the exact date when the Agreement was entered into, nor was he in a position to tell whether it was entered into in early, mid or late May. Although the Defendant gave evidence at trial that the date pleaded in his Defence represented the date of the Agreement, had he been able to confirm it, he would have stated the same in his witness statement. There was no explanation as to why he could not recall it when his witness statement was prepared, but could do so on the date of the trial.

70.  Second, the Defendant’s case is that he had already met the Plaintiff before 19 March 2018, and was able to ‘ascertain’ the Defendant’s involvement in the Company. However, this appears to be inconsistent with the contents of the Proposed Shareholding Framework dated 21 March 2018. Had the Plaintiff’s involvement been confirmed then, one would expect that reference would be made to the Plaintiff in the Proposed Shareholding Framework, whether to his shareholding or his operational involvement. However, there was none.

71.  Third, on 2 May 2018, Richard sent a WeChat message to Kent regarding the financial need of the Company. Kent replied that he would meet up with the Defendant later that night, and he would call Richard later. It is obvious that Richard was still very much involved in the affairs of the Company.

72.  By a WeChat message on 15 May 2018 from Kent to the Defendant, Kent stated that the Company’s shareholding should be: 40% to the Plaintiff as investor, 20% to the Defendant for research and development, 20% to Richard, and 20% to Kent for sales and marketing. It appears that that Richard was still involved in the affairs of the Company at least on 15 May 2018.

73.  If this was the case, had the Agreement been reached before 7 May 2018, one would expect that Richard would have joined the discussion and been a party to the Agreement. At least, there would be terms describing the shareholdings of Richard.

74.  Defendant gave evidence that he did not know why Kent would send out such WeChat message, and matters were not confirmed then. However, it illustrated the understanding of Kent on 15 May 2018, which the Defendant did not refute in the chain of their WeChat messages. The natural inference is that the Agreement was entered into after 15 May 2018.

75.  The Defendant argued that the Plaintiff had provided assistance to the Defendant to purchase the Company’s office insurance policy on 10 May 2018 and was recorded to become its staff starting from 18 May 2018. To these, I accept that as a veteran businessman who had seriously become interested in an investment opportunity in a start-up company, the Plaintiff would be prepared to offer assistance to the Defendant before the reaching of the Agreement. Such moves were in line with his self-interest that he could build his relationship with the Defendant and secure his opportunity in the Company, which he regarded as having huge potential.

76.  Fourth, on 28 May 2018, one day after entering into the Agreement, a WeChat group among the Plaintiff, the Defendant, Kent and Connie entitled ‘Clingko group’ was created. This development is in line with the fact that the Agreement was entered into the day before. The Defendant’s case was that it was intended to remove Kenneth from an earlier group, and hence this new group was created. However, it appeared that reference to Kenneth in their discussion ceased some time ago. If the removal of Kenneth was intended, for a private investment opportunity such as this, one should not and would not wait until 28 May 2018 to remove him.

Terms of the Agreement

77.  As to the terms of the Agreement, with my finding above that the Agreement was entered into on 27 May 2018, I further find that the Letter of Undertaking was signed by the Defendant on the same occasion, which evidenced part of the terms of the Agreement.

78.  The Defendant stated that the Letter of Undertaking was no more than a receipt, as a ‘documentary record to let administrative staff to do what should be done’. However, the Letter of Undertaking is entitled ‘承諾書’ in Chinese, which literally means an ‘agreement’ or a ‘note of promise’. A solemn promise was also recorded that the Shares would be transferred by the Defendant to the Plaintiff, which mirrored a fundamental term of the Agreement. In fact, when the Defendant was asked why the Letter of Undertaking was named a ‘承諾書’’ instead of a receipt, he explained that because it was a promise.

79.  By reason of my finding, the term contained in the Letter of Undertaking that the Defendant is required to transfer the Shares to the Plaintiff within 14 days after the clearing of the Cheques was also a term of the Agreement.

NON-TRANSFER OF SHARES

Repudiatory Breach of the Agreement

80.  The Plaintiff’s case is that:

(a)  After the Cheques were deposited on 4 July 2018, the Plaintiff and Connie repeatedly requested the Defendant to transfer the Shares to the Plaintiff. Kent also requested his 20% of shares to be transferred to him. The Defendant would remain silent or say that he would need to consult his lawyer to delay the matter;

(b)  Throughout July and August 2018, the Plaintiff and Connie kept requesting the Defendant to transfer the Shares to the Plaintiff. Kent similarly pressed for his 20% of shares of the Company to be transferred. Again, the Defendant would remain silent or say that he would need to consult his lawyer;

(c)  In August 2018, Connie enquired with Accolade on the steps for share transfer. The Plaintiff obtained a printout of Accolade’s reply to Connie, and passed it to the Defendant in the August Meeting to ask for the Shares to be transferred. The Defendant again remained silent, and later then said that he would need to consult his lawyer;

(d)  In the same meeting, Kent was running out of patience. He informed the Defendant in a serious tone that he had set a deadline for the transfer of his shares. After he came back from his trip to San Francisco in mid-September 2018, the share transfer had to be completed. It was Kent’s evidence that for the Plaintiff, he wanted the Shares to be transferred to him ‘as soon as possible’. Kent also demanded the Defendant to have the sample Speaker ready by November 2018 for product release;

(e)  In the September Meeting, Kent came back to Hong Kong to meet the Defendant. However, the Defendant neither did much on the sample Speaker, nor transferred Kent’s 20% shares of the Company to him. He scolded the Defendant strongly;

(f)  The Plaintiff proposed to the Defendant to split the Company’s shares equally among the Plaintiff, the Defendant and Kent. This proposal was turned down by the Defendant; and

(g)  The Plaintiff had a few subsequent meetings with the Defendant to resolve the dispute but were in vain.

81.  The Defendant’s case is that:

(a)  The Defendant has always been ready and willing to transfer the Shares to the Plaintiff;

(b)  The Plaintiff and Connie were responsible for all administrative matters of the Company, including the arrangement of the transfer of the Shares, given that they were responsible for finance and administration. However, they neither arranged for the transfer, nor asked the Defendant to arrange such transfer. They never provided any of the relevant transfer documents to the Defendant to sign, or asked the Defendant to attend Accolade to sign any share transfer documents; and

(c)  All the Plaintiff did was to ask the Defendant to split the shares in the proportion of 33%, 33% and 34% among the 3 shareholders. The Plaintiff, Connie and Kent never mentioned anything about the Letter of Undertaking to the Defendant in the entire 2018 after it was signed.

82.  I have little doubt that the Defendant committed a repudiatory breach of the Agreement.

83.  First, the Defendant contended that it was the Company who had the responsibility to transfer the Shares to the Plaintiff, not the Defendant. The Defendant relied on the phrase ‘本公司定會在入票後兩星期內，辦妥一切有關的股份轉讓事宜’ in the Letter of Undertaking. However, the Company was not a party to the Agreement. It was only an entity to be directed by the Defendant to carry out his obligations in transferring the Shares to the Plaintiff. This must be so as the promisor remains to be the Defendant, as reflected by the phrase ‘本人屈家偉…鄭重承諾…’. The Defendant cannot refuse to fulfill his contractual duty by simply shifting it to the Company. It was him who made the promise.

84.  Second, the Shares have all along been vested in the Defendant, and he was the sole director of the Company. He had every power and authority to transfer the Shares to the Plaintiff. Even assuming the Plaintiff (and Connie) had failed to take any steps to transfer the Shares, the Defendant should and could have proactively arranged for it.

85.  Third, the Defendant’s case that the Plaintiff and Connie had never pressed him to ask for the Shares to be transferred is inherently improbable. It is not disputed that the Plaintiff had fully paid for the Shares back in May by way of post-dated cheques, which was deposited on 4 July 2018, and the Agreement required the Defendant to transfer the Shares to him 14 days thereafter. It is also not disputed that the Defendant failed to do it within the said period. As an investor who has invested in a start-up company, one would expect that the Plaintiff would be anxious of having the Shares to be transferred to him as soon as possible after full payment was made. The Plaintiff had a huge incentive to do so. With the failure to transfer the Shares within the stipulated contractual period, it would only be natural for the Plaintiff to repeatedly follow up with the Defendant.

86.  The Defendant said that the Plaintiff only asked him to transfer 33% of the shares of the Company to the Plaintiff twice before 13 October 2018. However, the Defendant provided no explanation as to why it would be so, and as to the context under which the Defendant was asked to transfer more than what the Plaintiff would be entitled to under the Agreement. Even if it happened in the way as the Defendant said, it did not prevent the Defendant from contacting Accolade to transfer the Shares to the Plaintiff. I reject the Defendant’s contention, and find that the Plaintiff and Connie (and most likely Kent) had repeatedly urged the Defendant to carry out the share transfers orally. I accepted that in the August Meeting, the Plaintiff had provided to the Defendant the printout of an email from Accolade, advising the steps to be taken for a share transfer. I also accepted that since the Plaintiff, Connie, Kent and the Defendant would see one another rather often at the office of the Company at the Science Park, they may well prefer to discuss this important matter face-to-face as opposed to through WeChat messaging or email.

87.  Fourth, it is also counter-intuitive that the Defendant would simply sat there, doing nothing, even after the stipulated deadline for the transfer of the Shares. This is particularly so when it was the Defendant himself who wrote down in the Letter of Undertaking that the Shares had to be transferred 2 weeks after the deposit of the Cheques. If it happened according to what the Defendant said, it would have meant that by the inaction of the Plaintiff and Connie, they had put the Defendant in breach of the Agreement. It is counter-intuitive to suggest that when it happened, the Defendant would still do nothing rather than taking over the task of arranging for the transfer of Shares himself.

88.  Fifth, the Defendant’s attitude and lack of action support his abandonment of his contractual duty in transferring the Shares to the Plaintiff. The September Meeting further illustrates this. The Defendant gave an implausible reason to explain why Kent scolded him for a long time in the meeting. The Defendant said that it was because he created a mess on a table when he worked on the sample Speaker. The Speaker is central to the entire business of the Company. One would have thought that Kent would be glad to see that the Defendant was working hard on it, whatever ‘mess’ he might have created. The Defendant also gave evidence that he pointed out the impropriety on the part of Kent in handling the potential investor of the May Cheong Group. However, the September Meeting was held at a time right after Kent came back from the States. The meeting with May Cheong Group happened in around July 2018. Had there been any discussion about what went wrong in dealing with May Cheong Group, it should have happened right after they failed to secure the investor which would precede Kent’s trip to the States. I further note that the devastating one-hour scolding of the Defendant with foul languages by Kent (as suggested by the Defendant) would most likely be related to something so fundamental to the Company, bearing in mind that the Company was expected to be a goose that laid golden eggs for the investors. The consequence of such verbal attack would most likely break the fundamental business relationship between Kent and the Defendant. Had it not been for an important commercial reason, any veteran businessmen would have handled it differently.

89.  I therefore accept the Plaintiff, Connie and Kent’s evidence that the cause of the quarrel was due to the Defendant’s failure to produce a working sample of the Speaker, and to transfer the relevant shares to Kent and the Plaintiff. I also accept that the Defendant had never said that he would transfer the Shares to the Plaintiff, either by staying silent or by delaying the matter under the pretext of seeking further legal advice.

90.  Considering the breach of the 14-day period, the prolonged delay of 2 months, the attitude of the Defendant, the repeated delay tactics, and the inaction on the part of the Defendant despite the repeated urges by the Plaintiff, Connie and Kent, I accept that the ongoing silence and delay on the part of the Defendant as culminated in the September Meeting amounted to a repudiatory breach on the part of the Defendant that he had abandoned his promise. In my judgment, it was much more than a matter of mere delay, but a refusal by conduct to transfer the Shares. Whether time was of the essence of the Agreement is not an issue, as the Defendant simply refused to do so.

91.  After the September Meeting, the relationship among the Plaintiff, the Defendant and Kent broke down irretrievably. As the Defendant put it, ‘in his life, he had never been scolded like this’, and ‘he almost had tears in his eyes’. The September Meeting formed the dividing line in the parties’ relationship. It was clear to Kent that the Defendant would no longer transfer any shares to him and to the Plaintiff. Kent gave evidence that the Plaintiff did ask for compensation in the September Meeting, and the Defendant said he would need to find a lawyer.

92.  In the October Meeting, the Defendant proposed to the Plaintiff to reduce Kent’s shares from 20% to 2.5%. It was the Plaintiff’s evidence that he had asked for compensation during the meeting, but he accepted that if Shares were transferred to him at the time, he would still accept it. I accept that, at the time, what would be most important to the Plaintiff was to find out exactly what would happen to his invested sum after the business relationship broke down. He may well be exploring compensation on the one hand, and the possibility of Share transfer on the other hand.

93.  However, at least from 12 October 2018 onwards, by conduct, the Plaintiff had clearly accepted the Defendant’s repudiatory breach:

(a)  By a WeChat message from the Plaintiff to the Defendant on 12 October 2018 at 1:04pm, it reads, “關於轉股份一事，律師如何說法？”. The parties agreed that the share transfer referred to herein concerned the Plaintiff’s request for 33% of shares of the Company, as opposed to 20%. The Plaintiff was no longer seeking the transfer of the Shares, but more, probably to compensate him;

(b)  Further or in the alternative, on 13 October 2018, the Plaintiff unambiguously rejected the Defendant’s proposal to keep the original plan by transferring the Shares to him. In the Option Plan, the Defendant’s reference that the ‘Plaintiff may have lost interest in participating in the future development of the Company’ amply reflected the Defendant’s then understanding that the Plaintiff was no longer interested in the Company;

(c)  Further or in the alternative, on 1 November 2018, the Plaintiff had another meeting with the Defendant (the “November Meeting”), and he proposed that the Defendant should pay him HK$3 million in compensation; and

(d)  On 25 February 2019, the Plaintiff, the Defendant, Kenneth and Connie met again. The Plaintiff’s request for the return of his HK$1 million was rejected by the Defendant.

94.  It is my finding that all of the above, whether individually or collectively, amount to the Plaintiff’s acceptance of the Defendant’s repudiation of the Agreement. My finding is reinforced by the Defendant’s acceptance in his Defence that in October 2018, the Plaintiff was not involved in the business of the Company anymore and engaged in various exit negotiations with the Defendant.

95.  Indeed, the Plaintiff’s acceptance was well understood by the Defendant, and the Defendant’s subsequent moves were in line with his understanding of such acceptance:

(a)  On 24 October 2018, the Defendant appointed Wendy to take over all the power of the Plaintiff, Kent and Connie. The Defendant also asked them to take away all their personal belongings and make all the claims for reimbursement of expenses;

(b)  On the same date, the respective email accounts of the Plaintiff, Connie and Kent were locked;

(c)  On 25 October 2018, the Defendant sent 2 draft agreements to Kent, altering the relationship with him; and

(d)  In early December 2018, the Defendant had made an application to DBS to remove the Plaintiff as one of the signatories of the Bank Account.

96.  For completeness, I should also mention that the Defendant did not plead in his Defence that the Plaintiff did not accept the repudiation. The Plaintiff could have adduced evidence of facts which may have been relevant to his acceptance of the Defendant’s repudiation: Lui Yuen Shun v Mak Chui Ping (HCA 886/2012, 19.3.2015). In any event, I find that the Plaintiff has discharged his burden of proof in showing that the repudiation was accepted by him.

97.  Similarly, the Defendant did not plead in his Defence (not prepared by Ms Ng) the Plaintiff’s affirmation of the Agreement. I do not believe that the Defendant would be entitled to run a case of affirmation of the Agreement, as the Plaintiff would be denied of the opportunity to properly adduce factual evidence surrounding the purported affirmations in explaining his case. Indeed, Ms Ng only raised the issue of affirmation of the Agreement in her closing submissions.

98.  By reason of the above, I order that:

(a)  Damages in the amount of HK$1 million to be paid by the Defendant to the Plaintiff; and

(b)  Pre-judgment interest shall accrue on the said sum at the rate of 1% above the prevailing prime lending rate from the date of 18 September 2018 until the date of judgment, and thereafter at judgment rate until full payment.

99.  As to the costs, I make a costs order nisi that the costs of the Plaintiff be borne by the Defendant with certificate for counsel, to be taxed if not agreed. The costs order nisi shall become absolute in 14 days from the date of this Judgment if no application to vary the order is taken out.

100.  I thank Ms Lee and Ms Ng for their helpful submissions.