HUNDSUN AYERS TECHNOLOGIES LTD v. BRILLIANT NORTON SECURITIES COMPANY LTD

DCCJ 5345/2023

[2025] HKDC 1622

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5345 OF 2023

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ASSESSMENT OF DAMAGES

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A. Introduction

1.  This hearing concerns a contractual claim for the outstanding unpaid service fees relating to a service agreement dated 13 January 2017.

2.  The Plaintiff commenced these proceedings on 30 November 2023. Interim Judgment on the Defendant’s liability was entered against the Defendant on 3 May 2024.  The outstanding issue in dispute was limited to the assessment of damages payable by the Defendant.

3.  The Plaintiff is claiming by way of damages what is in fact payable as the debt due to the Plaintiff from outstanding unpaid service fees in respect of the following periods: (1)  from 1 November 2022 to 5 February 2023 (“The remaining Second Subsequent Term”); and (2)  from 6 February 2023 to 5 February 2025 (“the Third Subsequent Term”).

4.  The Defendant does not dispute liability and amount of contractual sum owed in respect of the remaining Second Subsequent Term, calculated at HK$206,402.  The Defendant however disputes liability in respect of the Third Subsequent Term.  At issue before me to determine is whether the Defendant is liable to the Plaintiff for the unpaid service fees in respect of the Third Subsequent Term.

5.  At the hearing before me, the Plaintiff was represented by Ms Sharon Ng of Counsel.  The Defendant was not legally represented and was attended by its former director, Mr Hiram Tsang.

B.  The Relevant Background

6.  The Plaintiff is an information technology service provider and certified vendor of the Broker Supplied System, ie an online system to conduct trading in the securities market (the “System”).  The Plaintiff owns and manages a production server within its physical production data centre located in an address in Hong Kong.

7.  The Defendant is a licensed company incorporated in Hong Kong registered with the Securities and Futures Commission to carry on the regulated activities of dealing in securities (Type 1)  and advising on securities (Type 4)  under the Securities and Future Ordinance (Cap.571).  The license expired on or after 5 August 2023.

8.  By a Service Agreement dated 13 January 2017, the Plaintiff entered into a Service Agreement with the Defendant, whereby the Plaintiff grants the Defendant a non-exclusive licence to access the System for the purpose of facilitating its customers to conduct securities trades.

9.  The Fixed Initial Term would be from 6 February 2017 (ie the System Launch Date)  to 5 February 2019, and the Service Agreement could be renewed/continued to subsequent terms according to the Service Agreement. 

10.  In exchange for the provision of services, the Defendant would pay a monthly fee in the sum of HK$38,500 (“Monthly License Fee”).

11.  The Service Agreement contains the following relevant terms:

(1)  Clause 6.5 Payment and Charges: “[The Plaintiff] shall issue an invoice to the [Defendant] in the advanced (sic)  at the beginning of every month. Credit period is FOURTEEN (14)  days from the date of invoice.  If the [Defendant] fails to pay [the Plaintiff] within the credit period, [the Plaintiff] reserves the right to suspend the services to the [Defendant] without liabilities until such time as all outstanding amounts are collected from the [Defendant].”  

(2)  Clause 8 Term: “This Agreement will be superseded [sic] the renewal quotation … which signed on 15 July 2015. Unless otherwise agreed by [the Plaintiff], the fixed initial term of the Agreement shall be TWENTY FOUR (24)  months (“Fixed Initial Term”)  beginning on the System Launch Date.  Thereafter, this Agreement will be automatically renewed for each subsequent term of TWENTY FOUR (24)  months (“Subsequent Term”)  unless terminated in accordance with Clause 9.”

(3)  Clause 9 Termination:

(i)  9.1 “Either party may terminate this Agreement immediately on giving written notice if the other party commits a material breach of this Agreement and that breach is not capable of remedy or is capable of remedy but is not remedied within THIRTY (30)  days of the party not in breach serving a notice on the other party specifying the breach and requesting that it be remedied.”

(ii)  9.2 “This Agreement shall have legal effect from the date of this Agreement and/or the Quotation.  In addition, the expiry dates of this Agreement and Quotation should be co-terminous in any cases, except there is specific written notice in the Quotation.  At the expiration of the Fixed Initial Term, this Agreement and/or Quotation shall automatically be renewed for a further period of TWENTY FOUR (24)  months (“Subsequent Term”)  unless either party gives not less than NINETY (90)  days prior written notice to the other party before the expiry of the Fixed Initial Term or the Subsequent Renewed Period of this Agreement.”

(iii)  9.3 “In the event of this Agreement is terminated by either party before the expiry of the Fixed Initial Term or the Subsequent Term pursuant to Clause (9.1)  and Clause (9.2)  hereof, the party shall be liable for all outstanding amount payable from and including the date of termination up to and including the expiry of the Fixed Initial Term or the Subsequent Term (as the case may be)  in accordance with the fees schedule as set out in the Exhibit A hereof.”

(iv)  9.4 “Any termination of this Agreement shall be without prejudice to any other rights or remedies a party may be entitled to hereunder or at law and shall not affect any accrued rights or liabilities of either party nor the coming into or continuance in force of any provision hereof which is expressly or by implication intended to come into or continue in force on or after such termination.”

(4)  12.1 Limitation of Liability: “Except for a breach by either party of Clause 11 or 14, and except for the parties’ respective obligations under Clause 13, under no circumstances shall either party be liable to the other party for any special, consequential or incidental damages, including but not limited to loss of profit, arising out of or in connection with this Agreement or from the use or inability to use the System or any connections provide [sic] by HKEx, such as but not limited to OCG[1] and OMD[2].”

12.  The Fixed Initial Term was from 6 February 2017 (ie the System Launch Date)  to 5 February 2019.

13.  Apart from the Service Agreement, the Plaintiff and the Defendant further entered into agreement for add-on services, by way of three quotations:

(1)  A quotation dated 24 January 2018 (“1^st Quotation”)  under which the Defendant would be provided with the add-on service of the Ayers Software Token App at HK$500 per month (“Monthly Token Service Fee”);

(2)  A second quotation dated 8 March 2018 (“2^nd Quotation”)  under which the Defendant would be provided with the add-on service of the 10M Leased Line at HK$6,600 per month (“Monthly Leased Line Service Fee”); and

(3)  A third quotation dated 24 June 2021 (“3^rd Quotation”), under which the Defendant would be provided with the add-on service of the Global Securities Module at HK$6,000 per month (“Monthly Global Module Service Fee”). A small fee of HK$2 (capped at HK$20,000 per month)  would also be payable by the Defendant for every trade executed via the Global Module for the front office of the System and the back office of the System (“Trade Execution Fee”)  (collectively, the “Additional Service Fees”).

14.  According to terms of the Quotations for the Additional Service Fees, the agreement terms are aligned with the signed Service Agreement.  Except for the 3^rd Quotation (which is renewed for a 12-month period upon its expiry), according to Clause 9.2 of the Service Agreement, the term of the Service Agreement would run concurrently with the Quotations.

15.  From 6 February 2017 to October 2022, during the operation of the Fixed Initial Term and the first subsequent term, the Defendant duly paid the Monthly License Fee and the Additional Service Fees.

16.  However, from 1 November 2022 onwards, during the Second Subsequent Term, the Defendant failed to pay any or any part of the Monthly License Fee or any of the Additional Service Fees.

17.  Pursuant to Clause 8, the Third Subsequent Term came into effect on 6 February 2023.

18.  On 22 September 2023, the Plaintiff issued a formal demand letter for the outstanding unpaid fees.

19.  The Plaintiff terminated the Service Agreement on 1 November 2023.  The Plaintiff initiated the proceedings on 30 November 2023.

C.  The Parties’ Respective Case

20.  There are discrepancies in the amount claimed by the Plaintiff in the documents.  At the hearing before me, Ms Sharon Ng of Counsel, on behalf of the Plaintiff, confirms that the correct amount claimed is as set out in her Opening Submissions.

21.  The Plaintiff claims for the Outstanding Monthly License Fee and Additional Service Fees:

(1)  From 1 November 2022 to February 2023, consisting of calculation of fees within the remaining Second Subsequent Term (ie 6 February 2021 to 5 February 2023), in the amount of HK$206,402.

(2)  From 1 March 2023 to 5 February 2025, consisting of calculation of fees within the Third Subsequent Term (1 March 2023 to 5 February 2025), in the amount of HK$1,185,265.44.

22.  The Defendant disputes that it is liable in relation to the Third Subsequent Term.  The Defendants says that:

(1)  In January 2023, a Mr Dennis Wu, the responsible officer of the Defendant contacted Mr Kwok of the Plaintiff to inform him that the Defendant would cease operations and would no longer require the Plaintiff’ services, and would be returning its SFC licenses in the near future.  Mr Kwok of the Plaintiff acknowledged this information and stated that he would notify his company. 

(2)  In any event, the Defendant had ceased operation on 3 February 2023, and returned its operating license to the SFC.

(3)  Thus, the Plaintiff ought to have known and accepted the termination of the Service Agreement by January 2023/ February 2023.  As such, the Defendant submits that it should not be liable for the unpaid service fees in respect of the Third Subsequent Term.

23.  The Plaintiff replies that under Clause 9.2 of the Service Agreement, proper termination requires 90 days’ written notice before the expiry of the Agreement.  The Plaintiff claims that, in the absence of any written notice served pursuant to Clause 9.2, the Plaintiff is entitled to allow the contract to continue to run and automatically renew pursuant to Clause 8, such that the Plaintiff is entitled to terminate the Agreement during the operation of the Third Subsequent Term in November 2023, and to claim from the Defendant, by virtue of Clause 9.3, all outstanding amount payable from and including the date of termination of the Agreement up to the expiry of the subsequent renewed term (ie 5 February 2025 for the Service Agreement and first two Quotations, and 12 December 2024 for the 3^rd Quotation).

D.  The Evidence

24.  Mr Ng Chi Kwong, the vice president and authorised representative of the Plaintiff, testified on behalf of the Plaintiff.  Ms Fu Ching Ki, the former director of the Defendant, testified on behalf of the Defendant.

25.  It is accepted by both parties that at no time did the Defendant issue any written notice to the Plaintiff to terminate the Service Agreement, pursuant to Clause 9.2 or otherwise.

26.  Ms Fu’s evidence on behalf of the Defendant was as follows.  She claimed that in around January/ February 2023, around the time when the Defendant was about to cease operation, she asked their responsible officer Mr Wu whether he called the Plaintiff, and he said that he did.  She seemed unsure of her answers and was unable to provided further particulars.

27.  Mr Ng on behalf of the Plaintiff claims that he does not recollect the events in January/February 2023.  The Plaintiff did not call Mr Kwok to give evidence.

28.  Despite this purported conversation, the Defendant did not follow up with any written notice of termination.  The Plaintiff continued to issue invoices well after the expiry of the Second Subsequent Term.

29.  After receiving the Plaintiff’s email requesting the Defendant to settle the outstanding service fees, by letter dated 30 November 2023, the Defendant explained to the Plaintiff that all the directors have left the Defendant since 31 January 2023, and referred to a conversation between the former responsible officer and the sales staff in the Plaintiff, stating that the Defendant had previously informed the Plaintiff of the same.  The Defendant further informed the Plaintiff that the Defendant had ceased business with effect from 3 February 2023.

30.  According to Mr Ng, it was company policy for the Plaintiff not to terminate Service Agreements unless and until they receive black-and-white written notification.  The Plaintiff all along was issuing invoice pursuant to the Service Agreement and only escalated the matter to legal in September 2023.  The Plaintiff then terminated the Service Agreement on 1 November 2023.  Mr Ng explained that the Plaintiff required 90 days’ notice to terminate services because the Plaintiff was required to keep the data within the server in accordance with the relevant SFC guidelines, and required the requisite time to wind down the services and comply with the relevant requirements.

E.  Discussion

31.  The applicable principles in respect of affirming a contract and suing for sums agreed thereunder have been comprehensively summarised by Deputy Judge William Wong SC in Holdwin Ltd v Prince Jewellery and Watch Co Ltd (unreported, 20 September 2021)  HCA  718/2020, 414/2021 at §60:

(1)  Upon a repudiation of the contract, the innocent party may elect to affirm the contract and hold the other party to the contract.  In such circumstances, and subject to certain restrictions, the innocent party may claim for the agreed sums owed to it under the contract in an action in debt, rather than sue for damages. See Chitty on Contracts, Vol 1, 35^th Edition, §31-002.

(2)  The restrictions are: if the innocent party (1)  requires the other party’s cooperation to perform; or (2)  has no “legitimate interest, financial or otherwise, in performing the contract, rather than claiming damages” in which case the Court would decline to grant the remedy of an agreed sum: see White & Carter v McGregor [1962] AC 413 at p431 per Lord Reid; also see Geys v Societe Generale, London Branch [2012] UKSC 63 at [86] per Lord Wilson.  It now appears to be settled law that these restrictions do not apply to a party’s general right to affirm a contract, only the remedy available to a party (see Geys above, supra).

(3)  The cases in which the court will not allow the innocent party to enforce his full contractual right to maintain the contract in force and sue for the contract price are said to be “very limited”.  The characteristics of such cases are that an election to keep the contract alive would be “wholly unreasonable” and that damages would be an adequate remedy, or that the landlord would have no legitimate interest in making such an election: see Reichman v Beveridge [2007] 1 P&CR 20 at [17] at [40] per Lloyd LJ.

32.  It is also well established law that an action in debt or for an agreed sum is not subject to the duty of mitigation: see Holdwin Ltd (supra)  at §62; Jervis v Harris [1996] Ch 195 at p202G-H per Millet LJ (as he then was); and Strong Offer Investment Ltd v Nyeu Ting Chuang (2007)  10 HKCFAR 529 at [46]-[47] per Chan PJ.

33.  Applying the principles into the present case, when the Defendant was in repudiatory breach by failing to pay for the Monthly License Fees and Additional Service Fees in November 2022, the Plaintiff, as the innocent party, is entitled to elect to treat the Service Agreement as on-going.

34.  Prior to the expiry of the Second Subsequent Term, the Defendant was entitled to cancel the automatic renewal of the Service Agreement by issuing written notice 90 days prior to the expiry of the term in accordance with Clause 9.2. Unfortunately, the Defendant failed to do so.

35.  As mentioned above, the Plaintiff is not under any duty to mitigate when it comes to electing whether or not to affirm a contract.  The duty to mitigate only arises in respect of the remedy available to the party.

36.  The Defendant also failed to persuade me that the present case falls under the very limited category of exceptions where it would be wholly unreasonable for the Plaintiff to keep the contract alive or that the Plaintiff had no legitimate interest in making such an election.

37.  I note that Clause 12.1 referred to parties’ agreement to exclude “loss of profit” arising out of or in connection with the Agreement. Read against the whole Service Agreement in context (in particular Clause 9.3), however, I consider that the “loss of profit” referred therein should be in reference to loss of profit that does not arise directly from the Defendant’s breach of the Service Agreement.  I doubt that the Plaintiff would expressly preclude itself from the right of recovering loss of service fees/income arising from the remainder of the extant service agreement term following a breach.

38.  I therefore find that the Plaintiff was entitled to allow the Third Subsequent Term to roll on, and is entitled to claim for the outstanding amount payable from the Defendant’s breach of the Service Agreement until the date of termination.  As the Service Agreement was terminated during the Third Subsequent Term, by virtue of Clause 9.3, the Plaintiff is also entitled to the outstanding fees payable from the date of the termination up to the expiry of the Third Subsequent Term.

39.  The Defendant is thus liable for the sum of HK$206,402 (ie in respect of the Remaining Second Term)  and HK$1,185,265.44 (ie in respect of the Third Subsequent Term), amounting to HK$1,391,667.44.

F.  Disposition

40.  I will therefore order that the Defendant do pay to the Plaintiff HK$1,391,667.44, together with interests thereon at 1% above the HSBC best lending rate from the date of the Writ, 30 November 2023, to the date of this assessment and thereafter at judgment rate until full payment.

41.  The Plaintiff shall have costs of the Action, to be summarily assessed on paper. I direct that the Plaintiff should file to Court and serve on the Defendant within 14 days from the date hereof his Statement of Costs.  The Defendant has leave to file 7 days thereafter his list of objections (if any)  in relation to the Plaintiff’s Statement of Costs.

[1]  OCG is defined in Clause 1 as “HKEx Orion Central Gateway which is provided by HKEx and it is a centralized access point enabling Exchange Participants to connect their Broker Supplied Systems (BSS)  to HKEx’s securities trading system”.

[2]  OMD is defined in Clause 1 as “a suite of market data product feeds with content, market depth and bandwidth requirements tailored to suit the needs of the Exchange Participants which is provided by HKEx”.