CHAN CHUN KUEN AND ANOTHER v. GANG PIAO JIA LTD AND ANOTHER

HCA 2783/2018

[2025] HKCFI 2781

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2783 OF 2018

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D E C I S I O N

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A.  FACTUAL BACKGROUND

1.  The disputes in this action arise out of a failed joint venture project made between the parties for the provision of, inter alia, estate agency services targeting 港漂 (a term commonly used nowadays to refer to those young and educated people who left Mainland China to Hong Kong in search for a job and place to live).

2.  The 1^st Plaintiff (“Chan”) sues the 1^st Defendant (“GPJ”) on a cooperation agreement (合作協議書) written in Chinese dated 17 June 2016 (the “Agreement”).

3.  The 2^nd Plaintiff (“Motorland”) is the corporate vehicle used for the purpose of the said joint venture. In this Action, Motorland sues the 2^nd Defendant (“Lau”) for breach of fiduciary duties on the basis that Lau had carried on a business that competes with that of Motorland. The parties have disputes as to whether Lau had resigned as a director of Motorland.

4.  In this trial, Mr Victor Lui appears for the Plaintiffs. Mr Osmond Lam and Ms Karen HY Choi appear for the Defendants.

5.  The undisputed / indisputable factual background may be summarized as follows.

A1.  The Co-operation Agreement

6.  Chan has been engaging in, inter alia, the business of insurance and investment.

7.  In about March / April 2016, Chan was introduced to Lau through a mutual friend. Lau informed Chan that he was involved in the business of providing online accommodation rental services for 港漂 (the “Business”).

8.  Later in about April 2016, Lau approached and enquired if Chan was interested in investing in the Business. Lau (on behalf of GPJ) invited Chan to invest the sum of HK$2,000,000 into the Business and represented to Chan that such investment was profitable. Upon queries by Chan as to how his investment would be protected, Lau represented to Chan that GPJ was willing to repurchase the stake of Chan for the sum of HK$2,000,000 within 2 years; and that this could be reflected in the contract to be signed between the parties.

9.  On 17 June 2016, GPJ as 甲方and Chan as 乙方 entered into the Agreement.

10.  Under the Agreement, it was agreed between the parties that Motorland would be used as the corporate vehicle for the Business. Motorland (referred to in the contemporaneous documents and the Agreement as 牧得隆) was a company established by Chan in Hong Kong, with an issued share capital of HK$100,000 divided into 100,000 shares of HK$1.00 each.

11.  The Agreement contains, inter alia, the following terms and conditions:-

合作協議書

甲方：港漂家有限公司

乙方：CHAN CHUN KUEN

甲乙雙方本著互利惠、共同發展的原則，經過友好協商，決定充分利用雙方各自的優勢，資源互補，雙方共同合作開發『港漂室友配對』業務。並於深圳設立運作點，進行各項業務合作發展事宜，特訂立本協議：

第一條、 新公司股份分配

基於便利性，雙方同意以『牧得隆財富管理集團有限公司』(下稱『牧得隆』)，承接此協議合約上定明之業務或專案。並雙方各持有50%『牧得隆』之股份。

無論任何情況下，乙方有責任確保有關股份轉移程序完成。

第二條、 合作開發專案和範圍

雙方共同合作開發『港漂室友配對』業務，甲乙雙方為合作投資者，需雙方同意甲方為執行日常業務管理者，讓『港漂室友配對』業務能擴大的前題下達成協議，乙方同意提供首年資金及上限港幣200萬元；甲方為項目管理者，需承擔一切『港漂室友配對』項目衍生的責任及於協商時間內向乙方匯報進度。

初步議定『新公司』旗下之應用程序下招收的會員，將會開發以下業務：

1. 所有衍生之保險業務

2. 港漂學生租房配對，將以地產中介形式進行

3. 港漂宿舍業務

就以上3點之業務為初步協議將共同開展的業務，任何其他新衍生之業務，必須通過『牧得隆』100%股權同意，方能進行。且不得與雙方公司產生利益衝突的前題下發生。

就第二條點3，『牧得隆』開發的宿舍業務，不得與甲方現行已營運的同類業務產生衝突。即於甲方未完成30間宿舍單位前，或其他任何有明顯衝突的決意，均不能於未取得甲方同意前進行。

第三條、 甲方權責

1. 甲方需將『聚守香港有限公司』旗下的所有保險中介協議合約、合作伙伴、業務收益，業務管理控制權及一切與『聚守香港有限公司』有關的業務，投放至『牧得隆』。

2. 甲方必須確保『牧得隆』開發的程式，於2017年內，至少有3,000名港漂會員使用。

3. 確保按乙方要求下安排舉辦所有有關保險業務的活動，包括但不限於學生派發情況、『牧得隆』及其合作機構等等。

4. 必須確保程式員於協商時間內，完成撰寫程式、監督及管理工作。如出現延遲或導致『牧得隆』損失利益的情況，其實任將由甲方一力承擔。

5. 甲方將不得與第三者以直接或合營方式經營第二條，點1及點2的業務。

6. 『牧得隆』必須於甲方完成與『中保(國際)有限公司』的合約內容及指定的30間宿舍業務後，成為港漂宿舍業務的唯一合作伙伴。

7. 甲方有權於良好管治及不違反合約協議下，作執行及管理決定。以達成合約內容為原則，如於不違反協議內容及沒有增加開支情況下，乙方將不得反對甲方之執行決定。

8. 任何一次性大於港幣5,000元及任何經常性開支增加，需得到乙方同意下方可進行，否則有關開支需由甲方承擔。

9. 必須每月整理當月會計報表，交股東會審議。

10. 甲方必須確保於2017年度，室友配對人數至少達500人。

11. 甲方必須確保2016及2017年度合共計算，與保險業務有關的轉介人數至少達1,000人。包括粵語班，各類活動等等。

12. 於2018年8月1日，如乙方提出要求甲方回購乙方手持之50%『牧得隆』股權時，甲方必須以港幣200萬元回購。

13. 甲方需向『聚守香港有限公司』的合約中介，進行培訓、管理等職務，以合約中介能成功銷售或招募，『牧得隆』收入作為最首要目標。

第四條、 乙方權責

1. 乙方需投放於上限港幣200萬的資金到『牧得隆』作營運費用。

2. 於2017年7月份開始或『牧得隆』支出已達乙方上限的港幣200萬元後，『牧得隆』的支出將由雙方按股份比例共同承擔。

3. 乙方有權於2018年8月1日，行使回購權，以港幣200萬元的作價，要求甲方回購乙方手持『牧得隆』的50%股權。

4. 乙方需派出保險中介代表，與會員接觸，產生銷售或招聘。並將乙方所得之利率按以下比例投於回『牧得隆』。

比例計算方法：

5. 如第三條，點3之業務發生。乙方需以投資形式，出資上限為30間宿舍。如超上限，則需另訂港漂宿舍業務補充協議并按此議定，出資租用單位之按金及上期，裝修、電器、傢俱及有關必須開支。而所收租金將扣減以後11個月租金、清潔費用及保留5%資金作營運，餘下金額即作『牧得隆』利益計算。

6. 乙方有權派出代表監察工作進度，有權隨時查閱公司的任何文件及一切資料，營運方(即甲方)將不得拒絕或刻意作出保留。

7. 除每月的會計報表外，乙方有權隨時查閱公司之會計帳目，甲方必須交出。

8. 乙方必需確保將『牧得隆』的50%股權轉讓給甲方，並承諾於2016年9月或之前交將轉股文件(Bought and Sold Notes & Instrument of Transfer)簽署妥當及會計帳目(Management Account)交予甲方辦理相關手續完成轉讓股份過程。

9. 就第二條，點2發生時，成立地產中介牌照、室能正常營業的前期責任在於乙方。甲方亦會協助有關成立時所需工作。

10. 乙方有責任確保其員工，員工定義為會透過乙方知悉甲方及無論以任何形式僱用之員工，不會作出令甲方有損失的聲明或任何令甲方公司利益受損的動作。

第五條、 雙方共同權責

1. 雙方需各派出一名代表，合共兩名代表，共同為銀行授權簽署方。所有開支必須得到兩名人員一同簽署，才能發出及認可。

2. 『牧得隆』於第二年度或乙方投資金額達港幤200 萬元後，『牧得隆』的一切開支將按甲乙雙方股份比例計算，各自承擔。如根據此合約，日後沒有在雙方同意下更改，即甲乙各承擔50%的費用。

3. 『牧得隆』必須向甲方，即『港漂家有限公司』提供長期IT支援，維護及一切『漂訊』手機應用程式有關的維護。而『港漂家有限公司』需付『牧得隆』每月1元的服務費用。 該產權所有擁與『牧得隆』無關，『牧得隆』只為服務提供者的角色。

4. … …

5. 就第二條，點1及點2。雙方及雙方員工均不得與第三者開發、或以合營形式、或透過利用『牧得隆』資源向第三方游說合作發展與『牧得隆』有利益衝突之業務。 不論是雙方失責監察員工問題、或雙方導致對方損失，如證實事件為真實，則需向對方作出實際損失的賠償。

6. 就第二條，點3；如甲方已完成與『中保(國際)有限公司』的合約內容及指定的30間宿舍業務後，雙方需按此合約內容上定明的條款，各按其職，進行第31間租用、招生等程序。而第31間起計的利益將按此合約內定明的條款，歸『牧得隆』所有。

第六條、 退股、增股機制及股東權益

1. 合作期間內，如果終止合作關係必需雙方同意方可終止，如單方取消合作關係，另一方需賠償對方之實際損失。

2. 如雙方如欲作出退股決定時，必須以當時股東作優先回購對象。

3. … …

4. … … 。

5. 另在終止合作關係的同時，提出終止方即時放棄於新公司內的所有權益，並需雙方協議以一指定作價，將手持之『牧得隆』股份賣予對方。

6. … … 。

… …

日期：17.06.2016

12.  After the signing of the Agreement:-

(1)  50,000 shares were transferred to GPJ, after which Chan and GPJ have become the only 2 shareholders of Motorland, each holding 50,000 shares of Motorland.

(2)  Lau was appointed as a director of Motorland on around 26 September 2016. Since then, the board of Motorland consisted of 3 directors, namely, Chan, one Chan Sze Ma (nominated by Chan) and also Lau.

13.  It is Chan’s case that, since the signing of the Agreement, he had invested into the Business an aggregate sum exceeding HK$2,000,000.

A2.  Chan exercising the Buyback Right

14.  Since about May 2018, Chan himself and his solicitors issued letters to GPJ, stating that Chan would exercise his right under Clauses 3.12 and 4.3 to demand GPJ to buy back the Shares on 1 August 2018 (the “Buyback Right”). Letters were issued by Chan and his solicitors to GPJ on 2 May 2018, 4 May 2018, 29 August 2018 and 1 October 2018, giving notice to GPJ of Chan’s exercise of the Buyback Right. Nonetheless, GPJ / Lau did not reply to any of these demand letters.

15.  Relying upon Clauses 3.12 and 4.3 of the Agreement, Chan’s case is that he is entitled to demand and GPJ is obliged to buy back from him the 50,000 shares in Motorland (the “Shares”) for a sum of HK$2,000,000.

16.  It is Chan’s case that GPJ failed to buy back the Shares for HK$2,000,000 and thus Chan commenced this Action against GPJ.

17.  In defence to Chan’s claim, GPJ argues that Chan is not entitled to the relief sought, relying upon the following defences:-

(1)  Chan’s Buyback Right is subject to two condition precedents (the “Alleged Condition Precedents”) which were not fulfilled by 1 August 2018, namely:-

(a)  Chan ought to have invested HK$2,000,000 before 1 August 2018; and

(b)  The Buyback Right is subject to a condition precedent that an 程式/ computer app (“App”) has been developed and operational.

It is GPJ’s defence that the Alleged Condition Precedents were not met when Chan sought to exercise the Buyback Right.

(2)  Further, consensus was reached between the parties at a dinner on 6 October 2016 (the “6 October 2016 Meeting”) for the termination of the Agreement, well before Chan’s attempt to exercise the Buyback Right in August 2018.

18.  Chan denies that the Buyback Right is subject to the Alleged Condition Precedents. He also maintains that he never consents to the termination of the Cooperation Agreement, whether at the 6 October 2016 Meeting or at all.

19.  For completeness sake, I should also mention this. In the Re-Amended Statement of Claim, it is also the pleaded case of Chan that GPJ breached Clauses 3.2 and 3.10 of the Agreement; and Chan suffered loss and damage as a result of such breaches. However, in the oral opening, Mr Lui made it clear that Chan is no longer suing on Clauses 3.2 and 3.10 of the Agreement.

A3. Claims by Motorland against Lau

20.  Motorland sues Lau for breach of fiduciary duties he owed as its director. Motorland’s case is that Lau has been operating a business (the “Competing Business”) that competes with that of Motorland, in the form of an estate agency providing rental services for mainland students and workers under the business name of “港漂家租務”.

21.  Motorland’s case is that, when confronted, Lau admitted that he was operating the Competing Business and indicated that he no longer wished to cooperate with Chan.

22.  In defence, Lau denies that he was in breach of any fiduciary duties owed to Motorland. Mr Lam describes Lau’s defences as simple, namely:-

(1)  Lau had already ceased to be a director of Motorland since 27 September 2016 (i.e. just one day after his appointment as director of Motorland). On this basis, Lau no longer owes to Motorland any fiduciary duties since 27 September 2016.

(2)  Even if Lau had engaged in any such competing business, there cannot be any breach of duties, when the Agreement was terminated on 6 October 2016.

(3)  Lau did not breach any fiduciary duties, when Motorland did not have any active business operations that GPJ could potentially compete against Motorland.

B.  WITNESSES; AND ISSUES IN DISPUTE

23.  For Chan and Motorland, they have filed the witness statements of Chan and also one Ms Ng Nga Yan, who was Chan’s former secretary.

24.  For GPJ and Lau, they have filed 3 witness statements of Lau. In addition, they have also filed a witness statement of Ng Wai Ting (“Ng”) (in relation to the 6 October 2016 Meeting). However, during the opening submissions, Mr Lam made it clear that Ng will not be called as witness for the Defendants.

25.  Pursuant to the Order made at the pre-trial review, the parties had submitted a joint statement of issues in dispute:-

First, in respect of Chan’s claims against GPJ:

(1)  Whether the terms of the Cooperation Agreement, in particular the Buyback right in Clauses 3.12 and 4.3, are valid and binding upon GPJ; and whether Chan is entitled to enforce the Buyback right.

(2)  Whether the exercise of the Buyback Right is subject to the 2 condition precedents as identified by GPJ;

(3)  Whether the Cooperation Agreement was terminated by mutual consent on 6 October 2016;

(4)  Whether GPJ was in breach of the Cooperation Agreement; and if so, the loss and damage suffered by Chan;

In respect of Motorland’s claims against Lau:

(5)  Whether Lau had validly resigned and ceased to be a director of Motorland with effect from 27 September 2016;

(6)  Whether Lau was a director of Motorland at the time when the alleged Competing Business was being operated;

(7)  Whether the alleged Competing Business was in direct competition with the business of Motorland; and

(8)  Whether Lau was in breach of the fiduciary duties owed to Motorland; and if so, the loss and damage suffered by Motorland.

C.  CHAN’S CLAIMS AGAINST GPJ

C1.  Applicable principles

26.  It is common ground that, in determining whether the Buy-back Right is subject to the Alleged Conditions Precedent, the question is one of contractual interpretation of the Agreement.

27.  On the principles relating to the interpretation of contract, the parties have cited numerous authorities, including ICS Ltd v West Bromwich BS [1998] 1 WLR 896 at 912G-913F, Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279, 296D-I; Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at §15; Achieve Goal Holdings Ltd v. Zhong Xin Ore-Material Holding Co Ltd [2020] HKCA 51, §16, per Kwan VP; and Chitty on Contracts (34^th ed).

28.  Mr Lui also relies on the decision in Skanska Rashleigh Weatherfield Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 at §§21-22, when Neuberger LJ (as he then was) emphasized, inter alia, that surrounding circumstances and commercial common sense do not represent a licence to the court to re-write a contract merely because its terms seem somewhat unexpected, a little unreasonable, or not commercially very wise. The contract will contain the words the parties have chosen to use in order to identify their contractual rights and obligations; and that at least between them, they have control over the words they use and what they agree. In the circumstances, the court msut be careful before departing from the natural meaning of the provision in the contract merely because it may conflict with its notions of commercial common sense of what the parties may must or should have thought or intended.

29.  At the hearing, I drew the parties’ attention to the latest decision of the Court of Final Appeal on this topic of contractual interpretation in Eminent Investments (Asia Pacific) Ltd v. DIO Corp (2020) 23 HKCFAR 487, §§42-45, per Ribeiro PJ and Lord Collins NPJ.

“42. The highest courts in Hong Kong and in England and Wales have returned often in recent years to the principles of the interpretation of contracts.[1] Reported cases deal of course with the difficult cases and it is easy to overlook the fact that the overwhelming majority of contracts are interpreted and performed without difficulty in accordance with their terms.

43. It is a truism that the starting point is the ordinary and natural meaning of the words of the contract, and of course in the vast majority of cases that is the ending point also. But, as Ma CJ pointed out in Fully Profit (Asia) Ltd v Secretary for Justice,[2] in the more difficult cases it is not particularly helpful to refer to the “ordinary and natural meaning” of words because in such cases there can be much debate over exactly what is the ordinary or natural meaning of words; and in those cases the surer guide to interpretation is context.

44. In Wood v Capita Insurance Services Ltd,[3] Lord Hodge JSC reviewed the many cases on interpretation and emphasised that interpretation was a unitary exercise. That is why, where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense.

45. The following points emerge from the judgment of Lord Hodge JSC:

(a) it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each;

(b) the court must be alive to the possibility that one side may have agreed to something which with hindsight did not serve its interest, or that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms;

(c) some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals, whereas the correct interpretation of contracts which are marked by informality, brevity or the absence of skilled professional assistance may be achieved by a greater emphasis on the factual matrix;

(d) but negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement; and

(e) commercial common sense and surrounding circumstances should not be used to undervalue the importance of the language of the provision which is to be construed, and the mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly for one of the parties, is not a reason for departing from the natural language.”

30.  Those principles are not in dispute.

31.  The only dispute between the parties relate to the admissibility of the documents and evidence which arose after the signing of the Agreement.

32.  Relying upon the House of Lords’ decision in James Miller v Whitworth [1970] AC 583, Mr Lui submits for Chan that subsequent conduct is inadmissible on the interpretation of the Agreement.

33.  However, relying upon the dicta of Lord Wilberforce in James Miller v Whitworth (above) at 614-615, Mr Osmond Lam for GPJ argues that all the contemporaneous documents including subsequent conduct are admissible on the interpretation of the Agreement.

34.  With respect, I disagree with Mr Lam. His reliance on the dicta of Lord Wilberforce in James Miller v Whitworth (above) is misplaced.

35.  In James Miller v Whitworth, the issue was to ascertain the governing law of certain construction contract in the absence of an express choice of law clause. The House of Lords held, inter alia, that the question of ascertaining the governing law of the contract is one of construction of the contract; and it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made, or one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month later: at 603 per Lord Reid.

36.  Mr Lam relies upon the dicta of Lord Wilberforce, who said this at 614H-615A:-

“Subsequent conduct is not relevant to the construction of contract unless it were to found an estoppel or a subsequent agreement” [Emphasis added]

37.  From the above, it is apparent that the dicta of Lord Wilberforce do not support Mr Lam’s arguments, given GPJ has never pleaded or raised any estoppel or subsequent agreement (i.e. to the effect that the exercise of the Buyback Right was subject to the Alleged Conditions Precedent).

38.  Further, I do not lose sight of the fact that GPJ also relies upon the consensus allegedly reached between the parties at the 6 October 2016 Meeting. But that subsequent consensus allegedly reached at the 6 October 2016 Meeting has absolutely nothing to do with the question of whether the Buy-back Clause is subject to any Alleged Conditions Precedent. Instead, it only goes to the separate question of whether Chan could still exercise the Buyback Right when the parties have allegedly agreed to terminate the Agreement. In the premises, any consent reached at the 6 October 2016 Meeting is irrelevant to the question of construction of the Agreement.

39.  In these circumstances, I reject Mr Lam’s argument and hold that subsequent conduct is inadmissible to the interpretation of the Agreement (for ascertaining if the Buyback Right is subject to the Alleged Conditions Precedent).

40.  Further, during the trial, I have drawn the parties’ attention to Lewison, The Interpretation of Contracts (8^th ed), at §16.13, where the learned author said this:-

“The question whether a contractual mechanism creates a condition precedent is a question of construction of the relevant provision in its contractual context, according to the normal principles.”

41.  After setting out the general position, the learned author quotes the judgment of Mr Justice Flaux in Astrazeneca UK Ltd v Albemarle International Corp [2011] EWHC 1574 (Comm) as follows:-

“Whilst it is clear that, for performance of a provision in a contract to be a condition precedent to the performance of another provision, it is not necessary for the relevant provision to use the express words “condition precedent” or something similar, nonetheless the court has to consider whether on the proper construction of the contract that is the effect of the provisions.”

“… in the absence of an express term, performance of one obligation will only be a condition precedent to another obligation where either the first obligation must for practical reasons clearly be performed before the second obligation can arise or the second obligation is the direct quid pro quo of the first, in the sense that only performance of the first earns entitlement to the second.”

42.  Further, Lewison (above) further said this at §16.14:-

“Because the classification of a term as a condition precedent may have the effect of depriving a party to a contract of a right because of a trivial breach which has little or no prejudicial effect on the other and causes that other little or no loss, the court will usually require clear words to be used before coming that conclusion.”

43.  The parties have no disputes on the aforesaid principles in Lewison and Astrazeneca UK Ltd.

C2. Discussion

44.  In the trial, Mr Lam argues that the clauses in the Agreement must not be considered in isolation; but must be considered in the context of the whole of the Agreement. He also argues that the clauses should not be read out of context and that the Court should consider the context and the background. Mr Lam relies upon Clauses 2 and 4.1 of the Agreement to argue that it is a condition precedent for Chan’s entitlement to the Buyback Right that he has actually invested HK$2,000,000.

45.  However, applying the principles summarized above, including in particular those discussed in Lewison (above) and Astrazeneca UK Ltd (above), Mr Lam’s argument has no merits. Dealing with the alleged condition precedent of the investment of HK$2 million first:-

(1)  The language of the Agreement is clear. Under Clauses 3(12) and 4(3), Chan as 乙方 has a right to demand GPJ as 甲方 to buy back the Shares for HK$2,000,000.

(2)  There are nothing in those clauses (or even in the Agreement) to the effect that the capital injection of HK$2,000,000 is a condition precedent before Chan could exercise the buy-back clause contained in Clause 4(3).

(3)  Further, the Agreement does not provide that Chan is duty bound to invest a sum of HK$2 million. Clause 4.1 merely provides that Chan has to make investment up to a cap (上限) of HK$2,000,000. (viz., 乙方需投放於上限港幣200萬的資金到『牧得隆』作營運費用).

46.  On Mr Lam’s argument that the Buyback Right is subject to the condition precedent of development of the App (especially when the business of Motorland would be premised upon and derived from the development of the App), I am also of the view that such argument has no merits at all:-

(1)  In the Agreement, there are no express provisions to the effect that this constitutes a condition precedent for the exercise of the Buyback Right.

(2)  More importantly, it is not disputed that the obligation to develop the App is an obligation of GPJ as 甲方: see Clauses 3(2) and 3(4) of the Agreement. On this basis, it is impossible to understand why Chan’s Buyback Right would be subject to the performance of GPJ’s duty to develop the App. GPJ’s interpretation defies common and commercial sense, when such interpretation would allow GPJ to rely upon its own failure to develop the App to deprive Chan’s right to exercise the Buyback Right. Mr Lam has not been able to explain why the performance of GPJ’s duty to develop the App would be a quid pro quo to Chan’s entitlement to the Buyback Right.

47.  In conclusion, on the proper construction of the Agreement, I hold that the Buyback Right is not subject to the two Alleged Condition Precedents that GPJ contends.

48.  Given my rulings above, it is not necessary for me to make any finding if Chan had invested more than HK$2 million. But insofar as it is necessary, I accept the evidence that Chan that he had invested more than HK$2 million. In this connection, Mr Lam argues that Lau was not a signatory of the bank account of Motorland and hence had no access to the details of the bank account. But copies of cheques / documents were provided by Chan to show that he had procured various sums to be deposited into Motorland’s bank account in an aggregate sum that exceeded HK$2,000,000 by 1 August 2018 (from 8 June 2016 to 25 July 2018). Mr Lam has no disputes to the fact that those sums were actually deposited into Motorland’s account.

D.  THE ALLEGED CONSENT REACHED AT THE OCTOBER 6 MEETING

49.  On Chan’s claim for the HK$2,000,000 pursuant to the Buyback Right, the remaining question is whether GPJ can prove, on the balance of probabilities, that Chan and Lau (on behalf of GPJ) had mutually agreed to have the Agreement terminated during the 6 October 2016 Meeting.

D1.  The parties’ respective cases

50.  It is common ground that Chan and Lau met at a dinner on 6 October 2016 at Yee Heen Chinese Cuisine in Tsimshatsui, Kowloon. Also present were Ng and one Chan Ka Shing.

51.  It is GPJ’s defence that the Agreement was terminated by mutual consent between Lau and Chan reached at the 6 October 2016 Meeting; such that Chan could no longer exercise the Buyback Right. This was denied by Chan.

52.  During cross-examination of Lau, he further suggested for the very first time that he and Chan had also reached an oral agreement in a telephone conversation between Chan and Lau on 28 September 2016 to terminate the Agreement. Mr Lui argues that this oral agreement allegedly reached on 28 September 2016 is not pleaded; and is not mentioned in any of the three witness statements of Lau; and is nothing but a recent fabrication.

D2.  Applicable principles

53.  In determining whether the parties had reached consent on 6 October 2016 for the termination of the Agreement, this turns on the oral evidence of Chan and Lau; and whose oral evidence should be preferred.

54.  On the assessment of witnesses’ credibility, the principles are well‑settled. The relevant ones may be summarized as follows.

(1)  In assessing credibility, the court takes into account, amongst other things, the inherent probabilities or improbabilities of a witnesses’ testimony; the contemporaneous documents or evidence which is undisputed or indisputable, tending to support or contradict one account or the other and the overall impression of the characters and motivations of the witnesses. Where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them: Big Island Construction (HK) Ltd v Wu Yi Development Ltd (unrep) HCA 1957/2005, 714/2007, 886/2007, 1364/2008, 28 July 2011, at §24, per Poon J (as he then was).

(2)  Importance is attached to the consistency of witnesses’ evidence with undisputed or indisputable evidence, and the internal consistency of witnesses’ evidence (tested by comparison between the oral testimony and his/her witness statement): Hui Cheung Wa v Daiway Development Ltd (HCA 1734/2009, 8 April 2014) at §79, per DHCJ Eugene Fung SC.

(3)  In Blue v Ashley [2017] EWHC 1928 (Comm), Leggatt J (as he then was) also held that it was rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind. The prevalence of emails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint.

(4)  Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded: Blue v Ashley (above) §49 per Leggatt J; Yu Man Fung Alice v. Chiau Sing Chi Stephen [2020] HKCFI 2923 at §18, per Coleman J.

(5)  Where it is shown that a witness has been discredited over one or more matters which he has testified, it is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest: Chiu Chi Tong v Lau Chong Sai & Anr (unrep) HCA 765/2002, 11 May 2005, at §28, per Chung J.

D3.  Any consensus reached for termination of the Agreement on 28 September 2016?

55.  On Lau’s belated suggestion that the Agreement was terminated on 28 September 2016, Lau gave evidence during cross-examination as follows.

(1)  On 28 September 2016, Lau called Chan to inform him of the decision not to continue with the Agreement and also his wish to resign as a director of Motorland.

(2)  According to Lau, Chan’s response was 好啊，可以咁做; and told him to notify his secretary Ms Ng to that effect; and that Lau did accordingly.

56.  I find Lau’s evidence in this regard wholly incredible and I have no hesitation to reject it:-

(1)  Lau had amended the Defence three times and had filed three witness statements in this Action. However, such oral agreement allegedly made on 28 September 2016 was never mentioned, whether in his pleadings or 3 witness statements.

(2)  In Lau’s witness statement dated 27 December 2019, he did refer to events that took place on 28 September 2016. It was his evidence that a meeting was scheduled to take place on 28 September 2016. Yet they decided to postpone the meeting, when he discovered that Chan’s mother had passed away. Had the oral agreement been reached on 28 September 2016 between Chan and Lau, one would have expected Lau to have addressed this in this witness statement. Yet Lau never mentioned the alleged oral agreement.

(3)  Further, such oral agreement allegedly reached on 28 September 2016 was never referred to or mentioned in any of the contemporaneous documents (including in particular the whatsapp exchange between the parties); or even in the three witness statements of Lau filed in this Action.

(4)  Such oral agreement allegedly reached on 28 September 2016 was only raised by Lau in the witness box during cross-examination for the very first time. As such, Mr Osmond Lam has not even put this version of events to Chan at all.

D4.  Any consensus reached for termination of the Agreement on 6 October 2016?

57.  On the alleged consensus reached on 6 October 2016 for the termination of the Agreement, Lau in his 1^st witness statement exhibited a letter dated 7 October 2016 written in Chinese (the “7 October 2016 Letter”), in which he referred back to the 6 October 2016 Meeting and stated that the parties had agreed to terminate the Agreement.

58.  However, in Chan’s 1^st Supplemental Statement, Chan immediately made it clear that he has never received the 7 October 2016 Letter from GPJ. Chan also complained that Lau has never mentioned how the 7 October 2016 Letter was sent to Chan.

59.  Subsequently, in Lau’s 1^st Supplemental Statement, Chan explains that he sent to Chan the 7 October 2016 Letter by post, when he posted it by inserting it into a post box in Hoi Yuen Road in Kwun Tong.

60.  Again, I find Lau’s evidence inherently incredible and inconsistent with the contemporaneous documents. I have no hesitation in rejecting Lau’s evidence:-

(1)  Lau has some experience in business. He also holds an MBA. The transaction under the Agreement is the very first transaction that he had with Chan. Had the parties reached consensus for the termination of the Agreement, as a matter of inherent probability, it is natural that such agreement would have been reduced into writing; or that such consensus would have been mentioned in the parties’ whatsapp or emails. However, such consensus was never mentioned in any contemporaneous documents.

(2)  More importantly, Lau’s evidence is inconsistent with the whatsapp exchange between Chan and Lau. Those messages reveal that, even after 6 October 2016, the parties still continued discussion on the basis that the Agreement was still on foot.

(3)  For instance, on 10 November 2016, there was exchange between Chan and Lau in respect of viewing certain properties in Hunghom and Tokwawan. Those messages suggest that the Agreement was still on foot. When he was cross-examined on those messages, Lau suggested for the very first time that the viewing of properties was for the purpose of another project between Chan and Lau. Yet it has never been the Defendants’ pleaded case or evidence that there was in fact another project between Lau / GPJ on the one hand and Chan on the other hand. Lau/GPJ have failed to produce a single piece of document to support his contention that in fact they had entered into another project.

(4)  Similarly, in January and February 2017, there was whatsapp exchange between Chan and Lau, in which they had discussions in respect of certain rented properties. As there is no other joint venture between the parties, such whatsapp exchange must be referrable to the parties’ co-operation under the Agreement. Again, these documents are inconsistent with Lau’s case that the parties had reached consensus for the termination of the Agreement back in October 2016.

(5)  Throughout the exchange, there was no mention that the Agreement had been terminated at the 6 October 2016 Meeting.

(6)  Quite the contrary, on about 18 May 2017, there was further whatsapp exchange between Chan and Lau, in which Lau hinted that he did not want to work with Chan anymore, Chan repeatedly emphasised the importance of 合約精神; 合約係咁樣寫. Worse still, Lau never raised or mentioned through the whatsapp about the alleged consensus reached on 6 October 2016 for the termination of the Agreement; or the 7 October 2016 Letter that he allegedly sent to Chan.

(7)  On 17 November 2017, the parties had some further exchange through whatsapp. Again, there was no mention of any consensus reached for the termination of the Agreement, let alone the 7 October 2016 Letter.

61.  When there were repeated demands made by Chan and his solicitors for the exercise of the Buyback Right, GPJ / Lau could have raised the alleged consensus reached at the 6 October 2016 Meeting and also referred Chan back to the 7 October 2016 Letter.

62.  Yet, in all the contemporaneous documents, Lau / GPJ never raised the consensus reached for the termination of the Agreement at the 6 October 2016 Meeting and/or the 7 October 2016 Letter.

63.  Taking into account the inherent probabilities and the contemporaneous documents, I have no hesitation in rejecting the evidence of Lau that the parties had agreed to terminate the Agreement on 6 October 2016; or that he had sent to Chan the 7 October 2016 Letter.

64.  In this regard, Mr Lui submits that adverse inference should also be drawn against GPJ in respect of the failure to call Ng. Given my factual findings above, it is not necessary for me to consider if adverse inference should be drawn against GPJ in respect of its failure to call Ng.

D5.  Conclusion on Chan’s claims against GPJ

65.  Apart from the aforesaid defences summarized above, GPJ has not put forward any other defences or submissions as to why Chan should be denied of his right to have his 50,000 shares bought back by GPJ for HK$2,000,000 pursuant to the Agreement.

66.  In light of the clear wordings of Clauses 3.12 and 4.3 of the Agreement, Chan should be entitled to exercise the Buyback Right. In conclusion, judgment should be entered in favour of Chan against GPJ accordingly. The above should have addressed Issues (1) to (3) of the list of issues submitted by the parties. It is not necessary for me to address Issue (4), when Chan is not suing for damages for his loss and damage (given Chan no longer pursues the claims for the alleged breaches of Clauses 3.2 and 3.10 of the Agreement).

E.  MOTORLAND’S CLAIMS AGAINST LAU FOR BREACH OF FIDUCIARY DUTIES

E1.  Summary of the claims and defences

67.  In this action, Motorland sues Lau for breach of fiduciary duties. The case of Motorland may be summarized as follows:-

(1)  Whilst acting as a director of Motorland, Lau owes to Motorland fiduciary duties.

(2)  In breach of the fiduciary duties he owed to Motorland, Lau has been operating another business in competition with that of Motorland, in the form of an estate agency services for mainland students and workers under the business name of “港漂家租務” (“Competing Business”).

(3)  When confronted, Lau admitted that he was operating the Competing Business and indicated that he no longer wished to operate the business with Chan.

68.  In his opening, Mr Lam maintains that Lau’s defences are two-fold:-

(1)  First, Lau was not a director at the time of the operation of the Competing Business, for he had tendered resignation and ceased to be a director of Motorland with effect from 27 September 2016. Alternatively, Lau had resigned on 6 October 2016 when the parties agreed to terminate the Agreement.

(2)  Second, even if Lau was still a director of Motorland when the Competing Business was in operation, there was no breach of any fiduciary duties on his part, when Motorland itself did not run the business of estate agency services for the mainland students / workers because of the failure of Motorland in developing the App.

69.  It is not disputed that, as provided for under the Agreement, the business of Motorland was to provide, inter alia, estate agency services for rental accommodation for mainland students and workers.

70.  From the evidence adduced by Chan, Lau was running the Competing Business. Motorland relies upon certain newspaper articles featuring interview of Lau on the business of the Competing Business. There was no dispute from Lau about those articles. It is not disputed that the nature of the business of the Competing Business is the same as that of Motorland.

E2.  Whether Lau was at the material times a director of Motorland

71.  Lau’s defence is that he has no longer been a director with effect from 27 September 2016. In this regard, Lau relies upon a letter dated 18 January 2018 written in Chinese that was addressed to Motorland. But again, it is not open to Lau to rely upon such letter, when such letter was not even pleaded.

72.  With respect to Mr Lam, such defence has no merits.

73.  Article 9(a) of Motorland’s articles of association reads as follows:-

“9. The office of a director shall be vacated if the Director:

(a) Resigns his office by notice in writing to the Company; or

(b) …

(c) …”

74.  In cross-examination, Lau accepted that Article 9(a) was not complied with; and he did not give written notice to Motorland on 27 September 2016 in compliance with Article 9(a).

75.  On 18 January 2018, Lau sent to the Companies Registry a Form ND4 (“Form ND4”) notifying of his resignation (i.e. almost 16 months after the purported resignation on 27 September 2016). But as Mr Lui submits, that Form ND4 does not serve as a “notice in writing to the Company”. In fact, Mr Lam has not sought to argue otherwise. The best that he could argue is that the Form ND4 is a public document; and that he sent a letter to Motorland on the same day informing Motorland of the same.

76.  During cross-examination, Lau belatedly suggested that he was not aware of Article 9(a), as he did not have in his possession Motorland’s Articles of Association. But this is not an excuse for him not to comply with Article 9(a), when clearly the Articles are applicable, irrespective of whether he had in his possession the articles of Motorland. Throughout the trial, Mr Osmond Lam has not advanced any argument to the effect that Article 9(a) is not applicable.

77.  Further, contrary to Lau’s allegation, in the Form ND4 that he signed, he ticked the box, which read that “I am required by the articles of the above-named Company or by an agreement with the Company to give notice of resignation to the Company and I have given notice of resignation in accordance with the requirement”.

78.  In conclusion, I hold that Lau had not validly resigned on 27 September 2016 and remained at all material times a director of Motorland. This disposes of Items (5) and (6) of the parties’ agreed list of issues.

79.  For the sake of completeness, as discussed in Section D above, I have also rejected Lau’s evidence that the parties had consented to the termination of the Agreement on 6 October 2016.

E3.  Fiduciary duties owed by Lau to Motorland

80.  It is common ground that, as a director, Lau owed to Motorland fiduciary duties, including a duty not to engage in business that competes with that of Motorland.

81.  In his opening, Mr Lui relied upon section 465 of the Companies Ordinance (Cap 622), which provides for the statutory duties of a director to exercise reasonable care, skill and diligence. But in his closing submissions, Mr Lui rightly made it clear that Motorland will no longer rely upon section 465 of the Companies Ordinance (Cap 622). That section has nothing to do with the fiduciary duties of a director.

82.  Putting that aside, Mr Lui also relies upon the following legal propositions:-

(1)  The duties of a director are “inflexible” and “fundamental”, including the duty not to place himself in a position where his or anyone else’s interests would or may conflict with the duties he owed to the beneficiary: Kao Lee & Yip v Koo Hoi Yan & Ors [2003] 3 HKLRD 296 at §§46-47, per Ma J (as he then was). These include, in particular, the duty not to place himself in a position where his or anyone else’s interests would or may conflict with duties owed to the beneficiary (the “Non-Conflict Duty”).

(2)  The Non-Conflict Duty encompasses not only non-competition with the company of which he is a director but also not to divert business opportunity from the company: Poon Ka Man Jason v Cheng Wai Tao (2016) 19 HKCFAR 144 at §§82, 91 per Spigelman NPJ, CFA.

E4.  Whether Lau was in breach of the fiduciary duties owed to Motorland

83.  The question here is whether Lau was engaged in the Competing Business, in breach of his fiduciary duties owed to Motorland. This is a question of fact; and Mr Lam has no serious disputes that Lau had been engaging in the Competing Business. As a matter of fact, whilst this is not his pleaded case[4], Mr Lam even argues that Lau had been engaging in such business and that Chan was fully aware of Lau’s involvement of such business right from the start.

84.  Mr Lam further argues that there was no breach of fiduciary duties on Lau’s part, when Motorland has never started its business properly without the development of the app. He argues that, in the absence of any operational business of Motorland, there cannot be any question of Lau conducting any business in competition with Motorland. But with respect to Mr Lam, the fact that Motorland did not carry on such business is neither nor there, for it is trite that the fiduciary duties included a duty not to misuse the corporate opportunities. It is trite that a director would still be in breach of fiduciary duty and was liable to account for the benefit he received, irrespective of whether the company would have been able to take up the opportunity.

85.  In this connection, Mr Lui also referred me to the decision of Deputy High Court Judge Wong Yan Lung SC in Fong’s National Engineering Co Ltd v. Wong Wai Yuk (unrep) HCA 5673/2003, 4 August 2003, in which it was held that a director would still be in breach of the fiduciary duty he owes to the company by failing to assist his own company and diverting a maturing business opportunity to a competitor or to himself. Again Mr Lam has no disputes on the aforesaid principles.

86.  In conclusion, I hold that Lau acted in breach of his fiduciary duties owed to Motorland, when he engaged in the Competing Business and acted in breach of the No Conflict Duty. Subject to the question of loss and damage of Motorland and the question of reliefs (which I will address in Section E5 below), Items (7) and (8) of the agreed list of issues are determined in favour of Motorland.

E5.  Whether Motorland has suffered any loss and damage arising out of Lau’s breach of fiduciary duties; election of remedy

87.  After the close of the evidence and before the closing submissions, I raised with Mr Lui that there was no evidence before the Court on the loss and damage that Motorland had suffered as a result of any breach of fiduciary duties on the part of Lau.

88.  After taking instructions, in the closing submissions, Mr Lui made it clear that Motorland has elected to pursue the remedy of account of profits. He cites various authorities, including Tang Man Sit v Capacious Investments Ltd [1996] AC 514, 521D-H, per Lord Nicholls and Re Ng Wai Jing [2016] 2 HKLRD 1460 at §39, per Kwan JA (as she then was) for the proposition that Motorland was entitled to make the election at the conclusion of the trial and no later than the closing submissions. Mr Lam has no disputes on these principles.

E6.  Relief sought

89.  Mr Lui seeks an order for account of profit in favour of Motorland against Lau. He relies upon the following authorities.

90.  In Regal Hastings v Gulliver [1967] 2 AC 134 at 144G-145A, per Lord Russell.

“The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.”

91.  In Kao Lee & Yip (above) at §§136-138, 141, Ma J (as he then was) said this:-

“136. Viewed in this way, in one sense, an account of profits can be said to result in a windfall for the beneficiary. The justification for this is the public interest in maintaining the highest standards of loyalty and fidelity on the part of fiduciaries and, to this end, thus to ensure that fiduciaries are financially disinterested in the discharge of their duties. As the High Court of Australia observed in Warman v Dwyer (1995) 128 ALR 201 at p.209: "The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage".

137. Conceptually, where a fiduciary has obtained an unauthorised profit for himself, equity will insist on treating him as having obtained it for his beneficiary: see the talk given by Sir Peter (now Lord) Millett "Bribes and Secret Commissions" [1993] RLR 7 at p.20 in a passage referred to by the Judicial Committee of the Privy Council in A-G of Hong Kong v Reid [1994] 1 AC 324 at p.337.

138. In the context of maturing business opportunities, the fiduciary is treated as having appropriated property which belongs to the beneficiary and he is therefore accountable to him for the profits as though it was trust property: see CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 at p.733D-F.

…

141. The object in ordering an account of profits is to ascertain as accurately as possible the true measure of the profit or gain made by the defaulting fiduciary as a consequence of his breach of fiduciary duty: see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at p.110. The most straightforward case is perhaps where there is a specific and identifiable gain that the fiduciary has made directly resulting from the breach of duty. For example, a fiduciary has used money belonging to the beneficiary to invest in the stock market and has made a gain in doing so. We are not concerned with that type of situation in this case.”

92.  Mr Lui also relies upon Tang Ying Loi v Tang Ying Ip [2016] 1 HKLRD 302, where Cheung JA said this at §4.28:-

“4.28 Snell's Equity (33^rd ed., 2014), para.7-054 at p.214 states that a fiduciary is bound to account for any profit that he or she has received in breach of fiduciary duty. The principal’s entitlement to an account of profits which have been made in breach of fiduciary duty is virtually as of right, citing Warman International Ltd. See also Kao Lee & Yip at [134]–[136].”

93.  Relying upon the aforesaid authorities, Mr Lui argues that Motorland should be entitled to an order against Lau for account for profits. Mr Lam does not dispute any of the aforesaid principles.

94.  In my judgment, Lau as a defaulting fiduciary is liable to account for any unauthorized profit made by him. Lau has not put forward any submissions / reasons why account of profits should not be ordered. In the circumstances, I shall make an order for account for profits in favour of Motorland against Lau.

F.  DISPOSITION

95.  During the hearing of the closing submissions, Mr Lui has submitted a draft order, including an order for an injunction to restrain Lau from operating the Competing Business insofar as he remains as a director of Motorland. Mr Lam made no submissions on its terms. On that basis, with minor revision, I shall make the following order:-

(1)  An order for specific performance of Clauses 3(12) and 4(3) of the 合作協議書dated 16 June 2016 and that the 1^st Defendant do purchase the 50,000 shares of the 2^nd Defendant for HK$2,000,000 within 28 days from the date of this judgment;

(2)  An account of profits be made against the 2^nd Defendant in respect of the 2^nd Defendant’s breach of fiduciary duties owed to the 2^nd Plaintiff in respect of his involvement in the operations of the Competing Business (as defined in the Re-Amended Statement of Claim filed herein) whilst acting as a director of the 2^nd Plaintiff;

(3)  The parties shall submit joint directions on the taking of account within 21 days from the date of this judgment. If no agreement can be reached, a directions hearing shall be fixed before me (with 30 minutes reserved);

(4)  The 2^nd Defendant (whilst still acting as a director of the 2^nd Plaintiff) be restrained, whether by himself or his servants, employees, agents or others whosoever acting on his behalf, from operating the Competing Business (as defined in the Re-Amended Statement of Claim filed herein).

(5)  An order nisi that the costs of and occasioned by the 1^st Plaintiff’s claims (including all reserved costs, if any) be paid by the 1^st Defendant, to be taxed if not agreed.

(6)  An order nisi that the costs of and occasioned by the 2^nd Plaintiff’s claim (including all reserved costs, if any) be paid by the 2^nd Defendant, to be taxed if not agreed.

(7)  In the absence of any application to vary the aforesaid costs orders nisi within 14 days from the date of this judgment, the aforesaid costs orders nisi shall become absolute.