LEUNG YUK LIN t/a KING'S GLORY EDUCATIONAL CENTRE AND OTHERS v. KARSON OTEN FAN, KARNO

HCA 900 and 945/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 900 and 945 OF 2006

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(Consolidated by the order of Mr. Justice A. Cheung dated 8 August 2006)

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J U D G M E N T

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Introduction

1.  This is an action for breach of contract.  The plaintiffs in High Court Action No 900 of 2006 (“HCA 900/2006”) are the defendants in High Court Action No 945 of 2006 (“HCA 945/2006”).  They operate two conventional day schools and a group of eleven tutorial schools under the name of King's Glory Educational Centre (“KG”).  The 4^th Plaintiff went into liquidation in 2007 and its litigation rights were assigned to the 2^nd Plaintiff on 11 December 2007.  The defendant (“Fan”) was a tutor who contracted to provide tutorial services at KG.  KG's claim is that Fan was in repeated breach of contract which KG accepted as repudiation of their agreement.  KG withheld payment of service fees due to Fan under the agreement and sued Fan for damages for breach of contract under HCA 900/2006.  Fan counterclaimed for payment of service fees withheld and under payment of his income share due under the agreement.  In HCA 945/2006, Fan sued KG essentially for what he counterclaimed under HCA 900/2006.  The two actions were consolidated by consent pursuant to the order of A Cheung J on 8 August 2006.  On 16 May 2008, Fan obtained summary judgment against KG in respect of part of his counterclaim, i.e. the outstanding service fees for the period of 10 March 2006 to 24 April 2006 in the amount of $2,650,661.  That sum together with interest accrued up to 16 May 2008 totalling $3,058,774.84 has been paid into Court by KG pending the outcome of this trial.

KG's case

2.  KG's case is that Fan joined KG in mid-2002 and entered into a written cooperation agreement in Chinese,《合作協定》(“2002 Agreement”) for a term of three years from 1 July 2002 to 30 June 2005.  Under the 2002 Agreement, KG was to provide school premises and various administrative and supporting services, while Fan provided his own teaching team and tutorial services at KG.  The parties shared in the course fees paid by students according to an agreed income share ratio.  The agreement was of the nature of a partnership or cooperation agreement and not a contract of employment.  On July 2003, the parties re-negotiated the terms of their cooperation, including an increase in Fan's income share ratio and the number of courses to be allocated to him and his teaching team.  As a result, the parties entered into a new written cooperation agreement in Chinese《合作協定》(“2003 Agreement”) on 7 July 2003 for a term of five years from 1 July 2003 to 30 June 2008, which superseded the 2002 Agreement.  The Teachers' Guidelines《導師守則》(“TG”) and Guidance Notes《導師交筆記須知》(“GN”) also form part of the 2003 Agreement (The number following “TG” or “GN” represents the number of the clause referred to in that document).  Specifically, clause 4 of the 2003 Agreement contained an undertaking on the part of Fan to conduct teaching exclusively in the school premises of KG (“undertaking”) and TG3(v) prohibited tutors from collecting personal data from students.

3.  As a result of the resources KG put into their cooperation and the effort of Fan, Fan's popularity grew rapidly and he commanded a very large number of students.  Since November 2004, Fan was in repeated minor breaches of the provisions of the TG and GN.  The breaches escalated.  Between 12 October 2005 and 15 November 2005, KG issued five warning letters to Fan in respect of the breaches.  Fan acknowledged receipt of the warning letters.  He neither protested nor gave any written explanation as requested in the warning letters.  On 24 April 2006, as a result of two further serious triggering breaches, namely collecting personal data from students (“students' personal data breach”) contrary to the TG and conducting on-line teaching in the website of Mind Works Limited (“on-line teaching breach”) in breach of his undertaking, KG accepted Fan's breaches as repudiation of the 2003 Agreement.  The damages KG claimed are essentially the loss of income share from the courses which Fan would otherwise have taught during the remaining twenty-six months term of the 2003 Agreement.

Fan's case

4.  Fan denies having entered into the 2003 Agreement.  His case is that when the 2002 Agreement expired on 30 June 2005, the parties continued their cooperation under an oral agreement renewable annually.  While the terms of their cooperation were agreed, the parties never entered into the 2003 Agreement.  On 7 July 2003, he was given an agreement to sign which he signed but crossed out immediately without giving it back to KG.  The 2003 Agreement produced by KG was a forgery.  Then the parties went on to discuss about a formal contract but never reached agreement.  He denies he was in breach of the TG and GN and alleges that the TG and GN were never strictly enforced. 

5.  Fan alleges that since he joined KG, KG did not pay him according to the agreed income share ratio.  Some time before the 2002 Agreement expired, the parties negotiated the terms of their cooperation agreement.  In March 2005, KG agreed to refund Fan about $500,000 and to improve his income share ratio.  However, despite the increase, Fan resiled from his agreement on the income share ratio in April 2005 and re-negotiated for further improved terms of their cooperation.  He offered to sign a cooperation agreement with a longer term in exchange for a higher income share ratio and a partnership share in one of the tutorial schools.  He became a shareholder of the 4^th Plaintiff in May 2005.  The parties reached an oral agreement in June 2005 about the terms of their cooperation, but never entered into any written agreement.  He admitted receiving the warning letters from Anthony Leung, the principal of the tutorial schools, and signing receipt for them.  But he did so only because Anthony Leung told him that it was a mere formality and he did not wish to make it difficult for Anthony Leung with whom he was in cordial relationship. 

6.  The tenor of Fan's case is that KG wanted to control and bind him under a new contract with harsh terms.  When he refused to sign the new contract, KG wanted to end the contractual relationship with him.  Systematically, KG started to allege and accumulate minor breaches so as to provide a cause for terminating their contractual relationship. 

The issue

7.  Broadly speaking, there are two major areas of factual dispute before the proper legal consequence can be determined.  Firstly, what was the contract which was applicable to the parties' contractual relationship at the time of the alleged breaches.  KG's case is that it was the 2003 Agreement.  Fan says it was an oral annual agreement which was on similar terms as the 2002 Agreement.  This boils down to the question whether the 2003 Agreement was a forgery.  The second area of dispute is whether Fan had committed the various breaches of the applicable agreement which gave rise to the warning letters and then committed the triggering breaches which resulted in KG's acceptance of Fan's repudiation of the agreement.  In respect of this area of dispute, whether the parties had entered into the 2003 Agreement is immaterial because the terms under that agreement relied on by KG were the same as those under the oral agreement admitted by Fan.

8.  If Fan was in breach of contract, whether of the 2003 Agreement or of the oral agreement, the next question is what was the legal consequence of the breach or breaches, i.e. whether KG was entitled to accept Fan's breaches as repudiation of their agreement. 

9.  As a matter of law, an innocent party may be discharged from the performance or further performance of a contract under three situations.  Firstly, he may repudiate a contract because of breach of condition of the contract committed by the other party.  A condition is an essential term which goes to the root of the contract.  Secondly, an innocent party may also be discharged from performance of the contract for other serious breach or breaches if, the consequence of which are such as to deprive him of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing his part of the obligation under the contract.  The innocent party may accept the breach as repudiation of the contract by the party in breach and consider himself as discharged from further performance of the contract.  Such a breach is a called a repudiatory breach.  Thirdly, even where the breach or anticipatory breach isneither one of condition nor repudiatory, the innocent party may renunciate the contract when the other party evinces an intention no longer to be bound by the contract.  See Chitty on Contracts, 13^th ed, Vol 1 at paragraphs 12-026 and 24-018.

10.  KG's primary case is that the prohibition against collection of students' personal data and Fan's undertaking to teach exclusively in KG's school premises were conditions of the 2003 Agreement.  Hence, the triggering breaches were breaches of condition and as such would entitle KG to accept Fan's breach as repudiation of the 2003 Agreement.  Alternatively, if triggering breaches were not breaches of condition, those breaches and the earlier minor breaches together constituted a repudiatory breach which deprived KG of substantially the whole benefit which it was the intention of the parties that KG should receive as their consideration for performing the 2003 Agreement.  KG was thus entitled to accept the triggering breaches and the other breaches as Fan's repudiation of the 2003 Agreement.  In the further alternative, the triggering breaches when viewed against the background of the persistent and continuous breaches despite repeated warning evinced an intention on the part of Fan not to be bound by the 2003 Agreement.  KG was entitled to renunciate the 2003 Agreement.  The legal issues are:

(1)  whether Fan's undertaking to teach exclusively in the school premises of KG and the prohibition against collecting students' personal data were conditions of the agreement between the parties; and

(2)  if not,

(a)  whether the breaches taken together constituted a repudiatory breach; or

(b)   whether by those breaches Fan evinced any intention no longer to be bound by the agreement between the parties.

The approach

11.  Mr Lam, counsel for Fan, argues that by reason of the factual disputes set out above, if the parties were bound by the 2003 Agreement, KG would be entitled to about twenty-six months' loss of income as damages, otherwise, KG would only be entitled to about two months' loss of income.  He argues that as Fan does not dispute that the TG and GN formed part of the cooperation agreement between the parties, whether the 2003 Agreement exists is only relevant as to the quantum of damages.  Hence, he submits that it would be convenient to first consider whether Fan was in breach.  If he was not, that would be the end of the matter.  If he was, then the Court shall consider the question of quantum when the issue whether the parties had entered into the 2003 Agreement would be relevant.

12.  Mr Pow SC, counsel for KG, opposes to such an approach.  He argues that the issue of forgery is not solely confined to whether the 2003 Agreement existed or not but permeates throughout the entire fact finding process.  If the 2003 Agreement is found to be a forgery, the entire basis of KG's claim will be annihilated.  The credibility of their witnesses will also be completely destroyed.  There will be no need to investigate into the various breaches.  On the other hand, if Fan's enigmatic accusation of forgery is found to be false, his credibility will be irredeemably damaged.  His explanations for the breaches will have to be assessed in the light of such crippled credibility and his challenges to KG's witnesses will have to be evaluated in the same light.  The basis of Fan's counterclaim will be shattered because he is claiming on the basis of an oral agreement which could not have existed if the 2003 Agreement was genuine and effective until 2008.

13.  I think Mr Lam's shortcut approach is logically flawed.  The 2003 Agreement is the basis of KG's claim.  The way in which the defence was pleaded is such as to make the issue of the forgery or authenticity of the 2003 Agreement the most germane issue.  That issued took up the majority of the time in this trial.  Importance factual and legal consequences, including my view as to credibility of the witnesses, flow from my finding on that issue.  The parties' evidence should best be considered in the chronological order in which the events occurred.  That is the orthodox and proper approach.  Thereis no logical reason to avoid dealing with that issue in the logical and chronological order in which the issues arise.  I agree with Mr Pow SC's approach.

14.  In considering the effect of the breaches, whether for the purpose of determining if the breaches constituted a repudiatory breach or if Fan had evinced any intention no longer to be bound by the 2003 Agreement, I shall consider the triggering breaches against the background of such previous breaches as having been established to my satisfaction.

Witnesses and their credibility

15.  KG called ten witnesses and Fan called eight.  Hereunder is a summary of my assessment of their credibility.

16.  Ms Leung Yuk Lin (PW1) - She is the sole proprietor of the 1^st Plaintiff and the executive director of KG.  She is assisted by the chief executive officer (PW4) and an assistant chief executive officer (PW3).  She used to be a social worker.  In 1986, she and her then husband (PW4) founded the 1^st Plaintiff and later KG.  She divorced PW4 in 1996 but continued to work with him and his new wife (PW3) in KG.  Subsequently, PW3 also divorced PW4.  In adducing that evidence, Mr Lam argues that PW1's and PW3's marital relationship with PW4 was relevant, but in the end, he failed to substantiate the relevance of their marital relationship.  I cannot see how such relationship affected my assessment of the credibility of PW1, PW3 and PW4.  PW1 made the decision to issue the five warning letters to Fan and subsequently to terminate the 2003 Agreement.  For reasons as explained in my analysis of the evidence, I find her credible and accept her evidence.

17.  Mr Norman Lui Man (PW2) -He is the supervisor of all the tutorial schools and day schools of KG.  He handed the five warning letters to Fan and obtained Fan's signature as acknowledgement of the warning letters.  His evidence corroborated that of PW1's.  Fan's main dispute on PW2's evidence is that those warning letters were not given to him by PW2, but by Anthony Leung who was not called to give evidence.  He suggested that PW2 gave false evidence to cover Anthony Leung's evidence.  Since the receipt of the warning letters and PW1's and PW2's presence when the letters were delivered were not in dispute, KG had no real purpose to call PW2 to stand in for Anthony Leung.  I find PW2 a credible witness and accept his evidence.

18.  Ms Folia Yiu (PW3) - She joined KG in 1989.  She worked as a receptionist and moved all her way up to be KG's chief operation officer and assistant chief executive officer with overall responsibility for various departments in KG including the course and marketing department (“C&M Department”).  She was married to PW4 during 1996 and 2000.  For reasons as explained in my analysis of the evidence, I find her evidence credible and accept her evidence.

19.  Mr Fred Shum (PW4) - He is the ex-husband of PW1 and of PW3.  He divorced PW1 and married PW3 in 1996, whom he also divorced in 2000.  Despite their marital disaccord, they all work harmoniously in KG up till now.  He was one of the founders of KG and assisted PW1 in the management of KG.  He also headed a team of tutors teaching English language in junior forms.  He was the former chief executive officer of KG.  He started with a humble background.  He was the most important witness on the execution of the 2003 Agreement.  However, the cross-examination of him on that factual issue was remarkably short.  The real attack was on his character which was based on his previous criminal convictions.  He had one conviction for assault during his early school days for which he received a bind-over order.  That offence was not related to dishonesty.  In 1980, he was convicted of theft involving breach of trust for which he was sentenced to two years' imprisonment on a plea of guilty.  He explained that at the time of the offence he was subjected to tremendous financial and emotional stress due to the death of his father.  He has not transgressed the law since.  He reformed himself and together with PW1 and PW2 built up this group of very successful tutorial schools.  His convictions and sentence is by no means a record which I would view lightly.  His evidence about witnessing Fan's execution of the 2003 Agreement is supported by the handwriting expert (PW10).  Having tested his evidence against the totality of the evidence and having seen him in the witness box and carefully observed his demeanour, I consider him a responsible and credible witness.  I accept his evidence.

20.  Ms Mak Ka Lai (PW5) - She joined KG in 1991 and is the manager in charge of the accounts department.  She witnessed Fan signing the monthly income share records whenever PW6 was not available.  She produced and explained the business records of KG in support of KG's claim for refund made to students and loss of profit as a result of termination of the 2003 Agreement.  She fairly disclosed evidence which is prejudicial to KG's claim for damages.  Her evidence was not seriously challenged.  I accept her evidence.

21.  Miss Grace Choi (PW6) - She is a senior executive officer of the accounts department of KG.  She was responsible for preparing the monthly income share records and cheques for paying the tutors service fees.  Usually, she witnessed Fan's signature on the income share records when he received the payments.  Her evidence was not in serious dispute.  She denied counsel's suggestion that someone might have replaced the income share records.  The purpose of that suggestion is to support Fan's handwriting expert's evidence that what purported to be Fan's signature on three of the income share records and the 2003 Agreement were forgeries.  That suggestion is speculative to the extreme and groundless.  I find PW6 a credible witness. 

22.  Ms Emily Choy (PW7) - She is an executive officer of C&M Department of KG responsible for processing the tutors' application for advertisement in the media and the registration of their lecture notes.  She testified that neither Fan nor his assistant had applied to her for advertising in the 751^st to 759^th issues of Yes! magazine.  In particular, she refuted Fan's allegation that she had related to him PW1's approval of his applications for advertisement in the 751^st to 759^th issues by producing inconvertible evidence that she was on maternity leave at the time of publication of those issues of Yes! magazine.  I have no doubt about her credibility and accept her evidence. 

23.  Ms Priscilla Mok (PW8) - She is the manager of C&M Department.  She gave evidence in a spontaneous manner.  For reasons as explained in my analysis of the evidence, I find her evidence credible and accept her evidence.

24.  Miss Katy Yuen (PW9) - She was an executive officer in C&M Department of KG.  She left KG in May 2008.  She is a non-interested witness.  Her answers under cross-examination were spontaneous.  I consider her an honest and credible witness.  I accept her evidence.

25.  Mr Cheng Yau Sang Patrick (PW10) - He was the handwriting expert called by KG to give expert opinion on the genuineness of Fan's signature on the 2003 Agreement (“questioned signature”).  He has a bachelor's degree in chemistry and a master degree in forensic science.  He headed the Questioned Documents Section of the Government Laboratory for eight years before retiring from the civil service.  His expertise as a handwriting expert and document examiner was not disputed by Fan.  He had given evidence as such expert in these courts before.  I consider him eminently qualified to give expert evidence on handwriting.  He gave evidence in a logical and well-presented manner.  He produced an album of the control signatures and the questioned signature illustrating the characteristics and features of the signatures.  His methodology and approach in examining signatures are familiar and consistent with those of the experts whom these courts have seen.  He impressed me as being a sincere, responsible and impartial witness.  I accept his opinion.

26.  Fan (DW1) - Fan is a young and married man.  He graduated from the University of Hong Kong in 1998 and started his teaching career.  He is a permitted teacher under the Education Ordinance.  He established a regular school known as “A-Ten School”.  He was not particularly successful.  He was then head-hunted by PW4 on behalf of KG.  He built an identity for himself particularly with the use of his name, “Oten” and the logo of what may be described as a cartoon figure of a super-kid.  He employed his team of teaching staff and supporting staff.  He promoted himself through advertisements in newspapers and in Yes! magazine.  He became a very successful and popular tutor of English language and commanded a wide student base.  That said, his conduct in this litigation presented a wholly different picture.  He changed his defence even shortly before trial, claiming that he misunderstood the allegations made against him.  His evidence departed from his pleaded case on many occasions.  He alleged that what purported to be his signature on the 2003 Agreement was a forgery.  Despite directions for filing handwriting expert's evidence had been given, for over two years he did not file any expert evidence to contradict the expert evidence produced by KG.  Again, shortly before trial, he sought indulgence for late filing of expert evidence, which I granted in the interest of justice.  He disputed the indisputable and insisted on strict proof on minor issues which no reasonable litigant would dispute.  For example, he disputed authenticity of all the signatures on the various income share records purportedly signed by him when acknowledging payment of service fees from KG and insisted to put KG to strict proof.  That clearly demonstrated a total lack of good faith in his conduct of the litigation.  He refused to admit any wrongdoing even when it was obvious.  He struggled with his unreasonable and even absurd explanations to the extent of putting the blame on his solicitors.  Most fatally, his evidence cannot stand up against the totality of the evidence.  For reasons as explained in my analysis of the factual issues, I find him an incredible witness.  I do not accept his evidence.  Where his evidence contradicts those of KG's, I reject his evidence and accept KG's.

27.  Mr Ballack Vincent (DW2) - He was one of Fan's students in KG.  He joined Fan's course in Modern Education after Fan had left KG.  He is now a Form 7 student.  His evidence is credible, except for his denial that what appeared to be his signature on the receipt for refund of his course fee from KG was his.  Subject to that, I accept his evidence.

28.  Mr Fung Kam Lun Edmond (DW3) - He was a teaching assistant employed by Fan.  He collected personal data from KG's students on the instruction of Fan.  Much of what he testified was based on what he was told by Fan.  His evidence is of no probative value.

29.  Mr Shum Lau (DW4) - He was Fan's handwriting expert called in at the eleventh hour.  His methodology and approach was out of line with prevailing practice and was of questionable validity.  His analysis was superficial.  I give no weight to his evidence. 

30.  Mr Kwan Man Chun Ben (DW5) - He was the general manager of Mind Works Limited.  He has left Mind Works Limited and may be regarded as an independent witness.  His evidence was very guarded.  He recruited Fan to conduct on-line teaching on the web portal www.my100fun.com.  Except for some minor issues, most of his evidence was not in dispute or of little relevance.  Where his evidence was in conflict with PW3's, I give no weight to his evidence.

31.  Miss Lee Yuen Si (DW6), Miss Fok Wing Yan (DW7) and Miss Tsoi Kit Ying (DW8) - They were Fan's students in KG.  They joined Fan's courses in Modern Education after Fan had left KG.  Their evidence were bare assertions which I consider incredible.  I think they were only telling partial truth.  I give no weight to their evidence.

The Facts

32.  KG's case is very straightforward.  Fan signed the 2003 Agreement on 7 July 2003 and was then in breach.  Fan's case is also straightforward, but not in the way it was defended.  He repeatedly changed his case.  Fan said that he did not sign the 2003 Agreement and that his contractual relationship with KG continued under an oral agreement on similar terms as the 2002 Agreement after it expired in June 2005.  However, he introduced into his latest case a new allegation that he indeed signed an agreement on 7 July 2003 but immediately crossed out his signature and his friend took the agreement away.  Then in 2005, the parties were in the process of negotiating a long term contract, but no agreement was reached because the terms were very harsh.  He argues that as by June 2005 KG had already improved the terms of his cooperation agreement, KG's version as to the background leading to the execution of 2003 Agreement is incredible.

33.  Before making my finding whether the parties had entered into the 2003 Agreement, I shall set out the characteristics of tutorial schools business to enable me to put myself in the factual matrix which the parties were in so as to understand their evidence.  Then I shall analyse the handwriting experts' evidence.  The expert whose evidence I accept will provide objective evidence which will support the allegation of the party calling him and destroy that of the other.

34.  After setting out the objective background and analysing the handwriting experts' evidence, I shall analyse the evidence of the parties in the chronological order in which the events occurred.  I shall first analyse the parties' evidence about the execution or the aborted execution of the 2003 Agreement.  Next, I shall analyse the events thereafter leading to the alleged breaches.  Then I shall take an overall view of the evidence and find if in fact the parties had executed the 2003 Agreement.  Lastly, I shall analyse the parties' evidence about the alleged breaches and, if necessary, the evidence about damages. 

The characteristics of tutorial school business

35.  The parties have no dispute about the characteristics of tutorial school business in Hong Kong.  These characteristics are fairly described in the evidence of PW1 and not disputed by Fan.  There are fierce competitions among the major chains of tutorial schools.  One of KG's competitors was Modern Education.  Students of tutorial schools are largely teacher-orientated.  Students follow the tutors wherever they teach.  The key to success for a tutorial school business is its ability to maintain a team of popular tutors.  A tutorial school has to promote the image of its tutors.  Externally, this is normally done through advertisements in popular magazines, on public transports and billboards.  Internally, this is done through the school arranging more tutorial courses, increasing student capacity for the tutor so as to increase his market exposure and fame and internal publicity materials.  With increase in a tutor's popularity, his student intake also increases.  So does the profit of the school.  Thus, if a tutor leaves a tutorial school, most of the students will leave with him.  Not only that the tutorial school will have to invest heavily in promoting another tutor, it will take some time before the new tutor could achieve the same level of popularity and command the same number of students.

36.  Depending on the popularity of the courses, some courses are conducted as “live classes” and some as “video classes”.  Live classes are conducted by the tutor himself.  When all vacancies in the live classes are filled, video classes will be conducted by the tutor's teaching assistants using the video recording of the live classes.  The fees paid by the students for video classes are same as that for live classes.  Usually the income share ratio for the tutor is lower for video classes.  But this is subject to agreement between the tutor and the tutorial school.  

37.  Unlike conventional schools, tutors of tutorial schools are not engaged as employees.  Their engagements are by way of cooperation agreement.  The tutors provide their own team of teachers and supporting staff.  They share in the income from students' fees.  The income share ratio depends on individual bargaining power of the tutor.  The income share ratio may even differ between different tutors in the same tutorial school.

Handwriting experts' evidence

38.  PW10 joined the Government Laboratory in 1969 as a laboratory assistant.  He was then awarded a government training scholarship which enabled him to obtain a bachelor degree in chemistry from the University of London in 1977 and a master degree in forensic science from the University of Strathclyde of the United Kingdom in 1978.  Since then he was promoted to the rank of a chemist.  He was posted to the Questioned Documents Section between 1990 and 2004.  He was a senior chemist and section head of that department between 1996 and 2004.  He is a Chartered Chemist, a member of the Royal Society of Chemistry of the United Kingdom, a correspondent member of the American Society of Questioned Document Examiner and a member of the Forensic Medicine Association of China.  He testified on numerous occasions in the courts of Hong Kong as an expert witness in various forensic areas including handwriting and his evidence were accepted.  I am satisfied he is an expert qualified to give expert evidence on handwriting.

39.  PW10 relied on fourteenoriginal signatures taken from income share records, one original signature taken from the 2002 Agreement and fivephotocopy signatures from companies documents filed with the Companies Registry signed by Fan as control signatures for the purpose of examining the questioned signature on the 2003 Agreement. 

40.  Fan did not admit that the signatures on the income share records were signed by him and put KG to strict proof of virtually all the income share records issued by KG to him during the relevant period of their cooperation until a time when autopay was arranged and Fan's signature no longer featured in the income share records.  Fan's task of identifying which signatures were not signed by him would have been a simple one.  However, as a result of the stance Fan took, it became necessary for KG to call PW5 and for PW5 to testify and to produce voluminous business records and to prepare copies of the same for trial.  However, during cross-examination, Fan was able to identify within a short break allowed by the Court three signatures which he felt suspicious.  In answer to my question, he confirmed that those three signatures were not signed by him, but was not sure if the others were.  In further answer to my question, he admitted that he signed income share record every time he received payment and he received all the cheques issued to him pursuant to the income share records, including the three in question.  Fan's stance is weird.  Mr Pow SC suggests that the only obvious reason for the weir stance Fan took was that he was trying to structure his evidence so as to be in line with his expert's suggestion that those signatures which KG's expert used as control signatures were simulations and hence KG's expert's evidence is unreliable.  That might be a possibility, but I would not place much weight on that possibility in my analysis.  The income share records were contemporaneous documents generated in the course of business.  There can be no perceivable reason for KG to forge Fan's signature on three of the income share records, especially as Fan confirmed that he signed the record every time he was paid and he did receive the payment stated on all the income share records, including those three.  If the records in respect of those three payments were lost, KG could have simply said so or produced records without signatures rather than producing forgeries.  As experts, except DW4, always say, free hand forgeries are extremely difficult to make, even for experts.  To impregnate genuine samples with forgeries would only compromise the analysis of KG's expert.  Their expert might even, on the basis of the forgeries, be misled into confirming that the questioned signature (even if indeed it is genuine) on the 2003 Agreement was false.  Fan's stance clearly demonstrates a total lack of good faith in his conduct of this litigation.  I have no doubt that all the signatures on the income share records, including the three disputed ones, were signed by Fan. 

41.  The income share records, the 2002 Agreement and the company documents were documents created in the normal course of business between 2002 and 2005.  They were contemporaneous documents.  PW10 examined them and was satisfied that the signatures were all signed by the same person before admitting them as control signatures.  It was appropriate for PW10 to use those signatures as control signatures samples in his examination.

42.  PW10 examined the questioned signature on the 2003 Agreement and the control signatures microscopically and macroscopically.  He examined the original signatures under the microscope.  He identified the characteristic features of the signatures and opined that the signatures were all written fluently and naturally in good line quality with obvious variation in writing pressure.  He produced an album of photographs of the signatures taken by high power digital camera. 

43.  From the control signatures, PW10 opined that Fan's signature is composed of three structural portions.  He identified the variations in all the three portions and noted that the variations in the middle portion were most pronounced and could be grouped into five categories.  He examined the questioned signature and concluded as follows:

“The questioned signature agrees in design with a variant form of the control signatures.  The questioned and control signatures were both fluently and naturally executed in good line quality with variations in writing pressure.  The characteristic ink deposits at turnings are present in both the questioned and control signatures.  Moreover, the questioned signature matches the control signatures in the inherent characteristic features, and it falls within the range of variations of the control signatures.  No evidence of any simulation or tracing forgery such as uniform writing pressure, tremors, poor line quality or incongruity in structural features could be observed.  In the light of these findings I am of the opinion that the questioned signature and the control signatures were written by one and the same person.” 

44.  DW4 joined the Government Laboratory in 1949 as a laboratory assistant.  He was a senior laboratory assistant when PW10 worked under his supervision.  He does not have a university degree but is a licentiate of the Royal Society of Chemistry.  He was promoted to the rank of scientific evidence officer in 1970 which he held until he retired in 1978.  He did not have any formal training in forensic or handwriting science.  He acquired his expertise in those areas from the Government Chemist who was in charge of the Government Laboratory.  Though a scientific evidence officer's duty was more concerned with collection of forensic evidence at the scene of crime and writing reports to the chemist, DW4 had vast experience in forensic work including handwriting analysis.  He had given evidence in the courts of Hong Kong and Singapore as handwriting expert.  In High Court Action No 2279 of 2002, Deputy High Court Judge Carlson held that though short on the academics DW4 had long practical experience which eminently qualified him to give expert evidence, though at the end of the day his Lordship preferred the evidence of the expert of the opponent who happened to be PW10.  Mr Pow SC also happened to be the leading counsel for the opponent. 

45.  Mr Pow SC now disputes DW4's status as a handwriting expert.  However, presumably due to want of time, he abandoned pursuing that in his cross-examination of DW4.  In his closing submission, he renews his challenge on DW4's expert status.  He referred to Hong Kong under the Microscope published by the Government Laboratory produced by Mr Lam in support of DW4's expertise.  The publication commended DW4 highly and mentioned his promotion to a newly created technical post of scientific evidence officer.  The publication described the officer who filled that post was to undertake the bulk of scene of crime attendance.  Hence, Mr Pow SC argues that DW4's experience was largely in the technical field of collection of forensic evidence at the scene of crime than in the professional field of handwriting analysis and is not qualified to give evidence on handwriting.  Mr Pow SC also argues that in High Court Action No 2279 of 2002, DW4 was called as a document expert and not a handwriting expert.  I think Mr Pow SC's challenge came too late.  He should have persisted in the challenge despite the pressure of time before I ruled DW4 as being qualified to give expert evidence and so that DW4 could have properly answered the challenge by way of cross-examination.  I understand that Mr Pow SC did not do so then because of the lack of time created by Fan in calling extra witnesses.  Be that as it may, in view of DW4's experience in forensic work, including handwriting examination and that his evidence had been accepted by the courts before, I do not feel any challenge to DW4's expertise at this stage justified.  I admit his evidence as a handwriting expert.

46.  However, I find DW4's presentation unimpressive and his methodology curious and out of line with prevailing practice of handwriting comparison which I am aware of.  While limited by his instructions, he did not have the freedom to obtain other signatures as control signatures.  He was confined to using the control signatures used by PW10.  He adopted a very “sanitized” approach towards his client.  He did not ascertain with Fan or his solicitors which of those control signatures were Fan's.  He did not even watch Fan demonstrating the execution of his own signature, which would have been a useful means of understanding the component structures of his client's genuine signature so as to demonstrate the forgery in the questioned signature.  While PW10 was deprived of that advantage, there is no reason why DW4 should not take advantage of the opportunity which was available to him.  I have seen other experts giving evidence on how their clients executed their signatures.  Instead, DW4 kept himself sanitized from being contaminated by any contact with Fan.  In the end, DW4 admitted he mistook “Karson” for “Karno” in the signatures.

47.  DW4 did not have the original control signatures and questioned signature and had to examine those signatures in the office of KG's solicitors.  Yet his examination of those original signatures was extremely brief, about 1½ minutes per signature.  He did not even make use of a magnifying glass.  He did not make any notes while examining those signatures.  He claimed to have good memories and had in mind what to look for after examining the photocopies in his office.  He said that in the office of KG's solicitors he was examining the original signatures for the signature patterns.  It is doubtful if he had carefully or properly examined the fluency, line qualities, pen pressure variations, pen pauses in the signatures and the ink deposits around the signatures with his naked eyes.

48.  As for the control signatures from the company documents, DW4 did not download the image of the signatures from the Companies Registry for examination.  Instead, he examined the images on the computer screen by enlarging and shrinking the images.  He admitted he could not observe the change in pen pressure during such process.  He only had a photocopy of the original questioned signature to compare with the images on the computer screen.  His methodology cast doubt on the reliability of his opinion.

49.  He identified two structural lines of “K” and “F” in the control signatures and opined that they were simple and vulnerable to simulation.  He concluded that four of the control signatures from the income share records were markedly different from the other sixteen control signatures and were simulations.  Then he compared the questioned signature with only one of the control signatures (item 5).  That control signature was Fan's signature on a company document filed with the Companies Registry.  DW4 could only compare the questioned signature with the control signature on the computer screen and not even with a photocopy of the control signatures.  That obviously is undesirable, especially when other original signatures were available for comparison.  He then concluded as follows:

“Referring to annexure 2 attached, my comparison of the control specimen signature (item 5) with the questioned signature in item 1 has found that they were different in respect of the line quality, the writing speed and the pen pressure.  Minor pen pauses were present in the questioned signature (item 1) (marked 1 on annexure 2).  These differences suggested that:

1.   the pen-gripping hand of the signatory of the control specimen signature (item 5) was signalled to write in accordance to the familiar image of the signature focused from the memory of the signatory;

2.   the pen-gripping hand of the author of the questioned signature was signalled to write in accordance to the image of portions of structural line focused continuously after visual transmissions.

The above findings, in evidence, are sufficient for me in giving an opinion of confirmative nature that the questioned signature in item 1 was a simulation.”  

DW4 did not identify what the differences in line quality, writing speed and pen pressure were and how those differences led to his conclusion.  He did not say how the simulation was carried out, whether it was a free hand simulation or done with tracing paper or against a lighted background.  He demonstrated a free hand simulation of the signature in Court.  I assume, by simulation, he was referring to a free hand simulation which requires a lot of practice even for a handwriting expert.

50.  Apart from the criticism of the very crude way his analysis was carried out, DW4's methodology was fatally flawed.  It is well accepted that unlike printing or typing, signatures executed by the same writer contain variations.  The conclusion that a signature is not genuine could only be properly reached when it contains divergence in amount and quality beyond the range of variation in the standard writing that cannot reasonably be accounted for by changed conditions in the writer or surrounding the writer: see Albert S Osborn on Questioned Documents 2^nd Ed 205.  I could have quoted more extensively from this useful and authoritative work.  But in view of the methodology adopted by DW4, which in my view is fatal to his conclusion, I find it unnecessary.  But I would commend to counsel and the experts to refer to this authoritative work.

51.  I accept that all the twenty control signatures, including those taken from the income share records, were Fan's genuine signatures.  It is obvious, even to the eyes of a layman, that those signatures exhibit a wide range of variation.  Yet, while accepting that fifteen out of the twenty control signatures used by PW10 were genuine, DW4 chose to compare the questioned signature with only one control signature and based on that comparison, he concluded the questioned signature was a forgery.  His reason for that approach was that the selected control signature was more closely related to the other control signatures except the “K” structure.  He said:

“Because item 5 is more closely related to Item 1, 17 to 20 except the “K” portion.  …  Be fair, if I choose all the other signatures (viz Items 2, 3, 4 and 6) they are totally different in visual appearance.  So to compare two sets of signatures of different pattern would not be convincing at all.”

The reasons DW4 gave demonstrated the total ignorance of the well recognised principle quoted in Albert S Osborn on Questioned Documents above.  In a broad brush, he swept away the whole range of variation which is characteristic of Fan's signature and limited his comparison of the questioned signature with one only of the control signatures.  That approach was fatally flawed and rendered his conclusion unreliable.  I consider DW4's examination was superficial and his methodology unscientific, unconventional and out of date.  I give no weight to his evidence. 

52.  PW10's approach and methodology is in line with the current practice in handwriting examination.  He examined a good collection of control signatures and identified the range of variation.  He carefully examined the questioned signature and concluded that it matched the control signatures in inherent characteristic features and fell within the range of variation.  He was satisfied that the questioned signature was fluently and naturally executed in good line quality which excluded the suggestion that the signature was a simulation.  I accept his evidence.  That said, I am not jumping to the conclusion therefore that the 2003 Agreement was executed by Fan.  I shall consider the parties' evidence on this issue together with PW10's expert opinion.  If the contrary evidence of the factual witnesses were compelling, I may even conclude that PW10 had erred.

The execution or aborted execution of the 2003 Agreement

53.  In early 2002, PW4 suggested inviting Fan from A-Ten School to join KG as a tutor.  After a number of negotiations, the 1^st to 3^rd Plaintiffs and another entity of the KG group which has since ceased business entered into the 2002 Agreement with Fan on 31 March 2002 for a term of three years starting from 1 July 2002.  Under the 2002 Agreement, Fan would receive 47% of the students' fees for live classes and 40% for video classes.  Fan would pay certain outgoings such as maintenance fees for the classrooms and cost of printing lecture notes and other materials.  At about the same time, Fan's friend, Hui See Ming Dick (“Hui”), also joined KG and signed a similar agreement.

54.  In May 2003, KG was planning for the academic year 2003/04.  According to the TG, a tutor would be allowed to conduct video classes in the coming academic year if he had at least 1,000 students in the current academic year.  Also, the student quota allocated to a tutor for the coming academic year would be 120% that of his student intake in the current year.  Fan requested PW4 to allow him to conduct video classes despite his students number was much less than 1,000 and to increase the student quota allocation for 2003/04 to 400% of his student intake in 2002/03.  He also asked to have his advertisements displayed in more prominent positions and for more resources to be allocated to him.

55.  Since the signing of the 2002 Agreement, KG had opened two new schools in Taipo and Shatin held by the 5^th and 7^th Plaintiffs respectively and were considering opening another school in Yuen Long to be held by the 6^th Plaintiff.  Having discussed among themselves, PW1 and PW4 thought it desirable to enter into a new agreement with Fan to include the 5^th to 7^th Plaintiffs.  In view of the additional resources to be invested in Fan by way of advertisement and student quota allocation, they also thought it necessary to protect KG's interest by entering into an agreement for a longer term of five years with a notice period of two years and a restrictive covenant that Fan shall not teach in any competing tutorial school for a period of one year should he repudiate the agreement.  The covenant was to ensure that Fan may not entice students to follow him to other tutorial schools in case he left KG to teach in other tutorial schools in breach of the agreement.  After a number of negotiations between PW4 and Fan, the parties reached agreement on the terms of the 2003 Agreement.

56.  On 7 July 2003, PW4 prepared the 2003 Agreement for Fan and a similar agreement for Hui to execute.  He explained the contents of the agreements to Fan and Hui together in the head office of KG, which was either in Lee Kee Building or Tak Bo Garden in Kowloon Bay.  They both signed on their respective agreements.  After that PW4 gave the agreements to PW3 who gave them to PW1 to sign on the following day.

57.  Mr Lam's attack on PW4's evidence is primary based on his previous conviction for theft in 1980 for which he was sentenced to two years' imprisonment.  In the last twenty-eight years, PW4 has led a decent life without transgressing the law.  Another implied attack was on his marital affairs with PW1 and PW3, but such affairs were neither here nor there as far as PW4's credibility was concerned.  The attack ridiculed them in their private life than in their credibility.  Mr Lam also attacked on PW3's and PW4's failure to recollect where precisely the 2003 Agreement was executed.  According to PW3, it was executed at about the same time when KG moved its head office from Tak Bo Garden to Lee Kee Building in Kowloon Bay.  Six years have lapsed.  It is excusable that they could not recall where exactly that agreement was signed.  The meeting on 7 July 2003 is not now disputed by Fan.  What is in issue is whether the agreement was signed and not where it was signed.  I do not think such failure on the part of PW3 and PW4 significantly affected their credibility. 

58.  Fan denied having signed the 2003 Agreement.  He said that after a tutors' meeting on 7 July 2003, PW4 told him and Hui that the 2002 Agreement had been lost and asked them to sign another one.  He had a quick glance over the document presented to him by PW4 and thought its content was similar to the 2002 Agreement and started to sign on the document.  He suddenly discovered that the font of a Chinese character「毀」(breach) was distinctly different.  He then noticed that the notice period was also different, namely two years.  Immediately, he crossed out his almost finished signature.  Then PW4 said there were some errors on the agreement and he would make another one for them to sign.  Fan then left as he was in a hurry.  Before he left, he whispered to Hui that the terms of the document were different from the 2002 Agreement and told Hui not to sign even if beaten to death.  He gave the crossed-out document to Hui as it was their practice for Hui to keep hard copies of documents.  Hui returned the crossed-out agreement to him for preparing this litigation.  Up to that moment of the trial, only a copy of the crossed-out document was disclosed and produced.  The original crossed-out agreement was only produced as Exhibit D-11 by consent during the course of Mr Pow SC's closing submission.

59.  Mr Pow SC attacks the credibility of Fan's story by referring to a series of letters starting from 26 April 2006 from his solicitors in which his solicitors referred to a Chinese agreement dated 7 July 2003 signed between KG and Fan.  Those letters clearly acknowledged the existence of the 2003 Agreement.  Mr Pow SC submits that Fan is now seeking to withdraw an admission.  Under cross-examination, Fan advanced a number of explanations for the misunderstanding between him and his solicitors.  He basically put the blame on his solicitors for the misunderstanding and for not correcting it.  I do not find it necessary to go into counsel's strong and lengthy arguments and Fan's explanations.  In the letter dated 26 April 2006 when Fan's solicitors mentioned the agreement dated 7 July 2003, they quoted the following term from the agreement:

 「必須為已編排之課程提供補習服務及履行導師之責任」

(My emphasis underlined)

(Translation: to provide tutorial services in respect of the scheduled courses and to carry out tutor's obligation.)

This term is only to be found in the 2002 Agreement.  The equivalent provision in the 2003 Agreement reads:

「必須為已編排之課程提供補習服務及履行導師守則」

(My emphasis underlined)

(Translation: to provide tutorial services in respect of the scheduled courses and to comply with the Teachers' Guidelines.) 

Whoever's misunderstanding or mistake it was, it is beyond doubt that when referring to the agreement dated 7 July 2003 in their letter, Fan's solicitors was quoting the terms of the 2002 Agreement.  Their reference to the agreement dated 7 July 2003 might have been carelessly picked up from KG's solicitors' letter.  It is unfair to bind Fan to an obvious mistake by his solicitors.  I am not going to find Fan's evidence incredible merely because of the mistaken reference to the agreement dated 7 July 2003 by his solicitors.

60.  There are other more real and serious concerns raised by Fan's evidence.  Fan first alleged that he had never signed the 2003 Agreement in his solicitors' letter dated 4 May 2006.  He now put forward his account of what happened on 7 July 2003.  He said he had vivid recollection of the incident.  It is that incident and Exhibit D-11 which formed the basis of his allegation that the 2003 Agreement was a forgery.  Yet, no account of the incident was foreshadowed in any of his solicitors' letters.  It was not mentioned in his defence or amended defence or any of his witness statements.  The detailed evidence of the alleged incident on 7 July 2003 giving rise to the allegation of forgery was only featured for the first time in his evidence in chief.  In fact a copy of Exhibit D-11 was disclosed in his list of documents dated 30 March 2007.  There was no reason why he did not inform his solicitors about this incident as it was this incident and Exhibit D-11 which he was relying on as evidence of forgery.  When pressed under cross-examination, he offered the lame excuse that he was in financial difficulties and could not afford many conferences with his legal team.  His explanation is hardly credible.

61.  The original of the crossed-out agreement, i.e. Exhibit D-11, was not produced until during Mr Pow SC's closing submission.  It was first disclosed as a “copy of Chinese Cooperation Agreement《合作協定》for the period of 1 July 2003 to 30 June 2008”.  This impliedly represented that Fan did not have possession or control of the original document.  In his evidence in chief, Fan said that he had given the original document to Hui.  After Mr Pow SC had commented on the absence of the original document and his failure to call Hui, Fan produced Exhibit D-11.  This is another example of his lack of good faith in the conduct of this litigation.  Furthermore, it is immediately apparent that the document was printed on a photocopied letter-head of KG.  One wonders why if KG was minded to induce Fan into signing a binding agreement, KG did not prepare one on an original letter-head as is the 2003 Agreement.  Fan's evidence about the incident on 7 July 2003 is incredible.  I find Exhibit D-11 a fabricated document.

62.  In conjunction with his allegation that he did not sign the 2003 Agreement and his cooperation arrangement continued under an oral agreement for yearly renewal, Fan alleged that the contracts of four other tutors of KG, namely Tsui Shun; Y H Lau; A Leung and Roy Tse, were also renewable in annually each academic year.  The allegation was readily rebutted by KG producing the relevant three-year agreements of those tutors.  After KG closed their case, Fan changed his case again and alleged during his examination in chief that two other tutors were engaged on yearly renewable contracts.  This is another instance of his lack of good faith in the conduct of this litigation. 

The making of the oral agreement and the events leading to the alleged breaches

63.  KG and Fan gave different accounts of what happened after the 7 July 2003 meeting.  According to Fan, after the aborted execution of the 2003 Agreement, the parties continued their cooperation under the terms of the 2002 Agreement.  However, in early 2004, KG unilaterally and in breach of the 2002 Agreement reduced his income share ratio of some of his live classes from 47% to 40%.  Again in September 2004, KG unilaterally gave very substantial discounts to students from the day schools of KG thereby reducing Fan's income share from their course fees.  Some course fees were reduced from $400 to $100, $50, $9 or even nil.  Fan and Hui were very dissatisfied and intimated to PW4 their intention to quit upon the expiry of the 2002 Agreement.  Then PW4 and other administrative staff of KG promised to increase their income share ratio across the board to 60% and promised to compensate him and Hui for the shortfall in their income share as a result of the discount given to KG's day school students.  After further negotiations with PW4, he and KG agreed to continue cooperation on an oral agreement on similar terms as the 2002 Agreement but with no fixed duration.  Their income share ratio was increased to 60% across the board and they were allotted 10% of the issued shares of the 4^th Plaintiff at the cost of $100,000.  KG also agreed to pay Fan $500,000 as compensation for the shortfall in income because of the discount given to KG's day school students. In July 2005, a comprehensive agreement drafted by KG's solicitors was presented to Fan for discussion.  However, Fan said that the parties were unable to reach agreement because of the harsh terms.  KG's promised compensation of $500,000 was the basis of Fan's counterclaim.  But the counterclaim has been withdrawn in the course of the hearing.  

64.  KG have no dispute about the increase in income share ratio, the allotment of shares of the 4^th Plaintiff to Fan and their discussion about a comprehensive written agreement, but dispute that the compensation for the shortfall was agreed in the amount of $500,000 and the existence of the oral agreement.

65.  I shall first deal with the compensation for the shortfall.  According to PW1, the demand for compensation arose as follows.  Before the commencement of the 2004/05 academic year, KG promoted the tutorial schools to their students in the day schools by offering them discounts in course fees in the tutorial schools.  As the promotion would affect the income of the tutors, PW3 or her staff in C&M Department consulted all the tutors and sought their agreement to income sharing based on the discounted course fees so that the discount would be absorbed by both KG and the tutors.  According to PW1 and PW3, all the tutors including Fan had agreed.  They signified their agreement on some minutes of meeting but she could not produce the minutes which might have been lost or misfiled during the move of KG's office.  Fan was paid his income share calculated on the discounted course fees. 

66.  However, on 24 March 2005, Fan resiled from that agreement and demanded that his income share should be based on the non-discounted course fees.  PW1 remembered the incident clearly as she was on leave on 24 March 2005 in preparation for a trip and that the following day was her birthday.  She was informed by her staff of Fan's demand and rushed back to the office to discuss with Fan.  Fan presented her a list of twelve demands together with Hui.  In essence, they demanded higher income share ratio, extending their courses to cover Form 1 to Form 3, doubling their student quota, more publicity, more prominent front row position in staff photograph and a staff announcement confirming that they were first line tutors of KG.  In addition, they demanded a refund of the shortfall of their income due to the discounted course fees.  Since KG were unable to produce Fan's written agreement to income share based on the discounted course fees and in view of the large number of students taking Fan's courses, PW1 immediately agreed on behalf of the 1^st and 2^nd Plaintiffs over which she had full control to refund Fan the shortfall in respect of the period from 1 September 2004 to 9 March 2005 and to pay him with effect from 10 March 2005 on the basis of the non-discounted course fees, leaving the other demands to be discussed after she returned from her holidays and had an opportunity to consult the other shareholders of KG.  PW1 said that she submitted to the demand because KG was unable to produce Fan's signed acknowledgement to income sharing based onthe discounted course fees and did not want to offend Fan as Fan commanded a large number of students.  The shortfall was back paid to Fan by two payments of $34,350 and $47,987 in April 2005 and thereafter Fan was paid his income share based on the non-discounted course fees.  There was nothing owed to Fan in respect of the alleged shortfall.

67.  On or about 8 April 2005, Fan renewed his demand for increase of the income share ratio to 60%.  In May 2005, the shareholders of the 3^rd to 7^th Plaintiffs had a meeting with Fan.  At the meeting, Fan offered to enter into a longer cooperation agreement with KG in exchange for his various demands.  Eventually towards the end of May or early June 2005, KG agreed to allot Fan 10% of the shares in the 4^th Plaintiff and to increase Fan's income share ratio to 70% for the 4^th Plaintiff's tutorial school in line with the income share ratio of shareholders with effect from 10 July 2005 and 60% for all the other tutorial schools of the Plaintiffs with effect from 10 May 2005.

68.  According to PW1, KG was in the process of overhauling all the agreements with their tutors.  They had prepared an agreement but had not reached the stage of execution because the schools were busy between June and August 2005 with the beginning of the academic year and enrolment procedures and then the breaches occurred.  That was the background when the breaches of the 2003 Agreement were allegedly committed by Fan.

69.  Except for the amount of compensation for the shortfall paid and the making of the oral agreement, the above evidence are not seriously disputed by the parties.  Fan's case has never been consistent in respect of the compensation.  In his Re-Amended Defence and Counterclaim, he alleged that it was an express term of the oral agreement that KG would account for and pay him the shortfall in the amount of $500,000.  In his answer to KG's Request for Further and Better Particulars, he alleged that KG agreed to pay him $500,000 by two instalments to be effected on 15 April 2005 and 13 May 2005 as compensation for the shortfall.  In his witness statement, he was less precise about the amount and said that KG agreed to pay him about $500,000 by two instalments on those two dates.  However, in his evidence in chief, he gave a wholly different version.  He said that the amount was just an approximate sum for KG to show their sincerity and represented loss of income caused by the discounted course fees, 7% reduction in income share ratio for his video classes and the difference between the income share ratio of 65% he demanded and the 60% which KG eventually agreed.  He also confirmed that he abandoned all his counterclaim.

70.  However, the incontrovertible documentary evidence shows that the shortfall for the period from 1 September 2004 to 9 March 2005 was refunded to Fan through two back-payments in April 2005 in the amount of $34,350 and $47,987.  There was no more shortfall or back- payment after April 2005 as Fan was paid his income share based on the non-discounted course fees.  The breakdown of the back-payments were attached to the income share records which showed that the back-payments were not concerned with the 7% reduction for video classes.  His counterclaim for the difference between the 65% he demanded and the 60% which KG eventually agreed to pay is ridiculous.  If he had agreed to 60% with KG during the meeting with the shareholders of KG in May 2005, he could have no counterclaim.  In any event, no such counterclaim has been made in his Re-Amended Defence and Counterclaim.  When cross-examined as to why he abandoned his counterclaim for the loss of income caused by the discount, Fan answered that he was concerned about the legal costs and overrunning of the trial.  This explanation is wholly disingenuous.  His conduct of the litigation had been most inconsistent with any intention to save costs and time.  He made last minute changes in his pleaded case.  He called additional witnesses.  He called the handwriting expert when his solicitors earlier indicated that no such expert witness would be called.  He also disputed his signatures on all the income share records.  Fan's assistant subsequently signed an acknowledgement to participate in the promotion scheme and to share discounted course fees for 2005/06, which suggests that it is not unlikely that he had also agreed to join the promotion scheme in 2003/04 and 2004/05.  Lastly, when asked if he had documentary evidence in support of KG's agreement to pay him $500,000, he replied that he had handed them over to his solicitors.  But, no such documents were eventually produced by his solicitors.

71.  By way of contrast, PW1's along with PW4's evidence are to be preferred.  PW1's evidence was cogent, detailed, logical and supported by Fan's list of demands and payment records.  Fan was not consistent.  His evidence was fragmented and departed from his witness statements and pleadings.  He asserted that he had given documentary evidence about the agreement for $500,000 compensation to his solicitors while his solicitors watched helplessly.  In the end, his solicitors did not produce any such evidence.  The incident amply demonstrated the readiness with which Fan passed the blame to others when he was short of explanation for his conduct.  In the end, he abandoned all his counterclaim under a lame excuse of saving costs which is totally inconsistent with the way he conducted the litigation.  This is another sign of his lack of good faith in pleading his case and in making irresponsible and unsubstantiated assertions.  His evidence bears all hallmarks of concoction and exaggeration. 

72.  Mr Lam suggests that PW1 was annoyed by Fan's twelve-point demand on 24 March 2005 and the ever escalating demands for increased income share ratio and hence she dishonestly orchestrated PW3 and PW4 to concoct a case to get rid of Fan and at the same time to claim twenty-six months' damages against him.  But the difficulty of that argument is Fan's new case of aborted execution on the very day when, according to KG's case, he executed the 2003 Agreement.  Fan's new case suggests that there was a meeting about signing of the 2003 Agreement.  If his evidence is believed, then the execution was aborted.  But if his evidence is disbelieved, it supports PW4's case that in fact Fan signed the 2003 Agreement.

73.  PW1 denied that she was annoyed.  Indeed she rushed back to her office from her leave to deal with the matter.  Under cross-examination, she answered counsel's question in a most unemotional and business-like manner.  She realised the reality that Fan was very popular and commanded a very large number of students.  She understood that different tutors had different bargaining power.  I was not provided with the data on student intake for the period from March to May 2005.  But, according to the data for the period from November 2005 to March 2006, Fan alone accounted for one-third of KG's students in the English courses.  At that time, he was only teaching Form 4 and above.  PW1 appreciated that by conceding to the demands KG would be making more money and she submitted.  In fact, she immediately agreed to compensate the shortfall alleged and with immediate effect paid Fan according to the non-discounted rate on behalf of the 1^st and 2^nd Plaintiffs.  After consulting the shareholders of the other Plaintiffs, KG totally submitted to Fan's demands, gave him 10% of the shareholdings in the 4^th Plaintiff and increased his income share ratio.  Despite a lower income share ratio for KG, PW1 anticipated more profit because Fan would be able to attract more students.  As long as the goose would lay more golden eggs, there was no reason for PW1 to kill it just because she did not like the way it quacked.

74.  Mr Lam submits that as KG had already implemented the improved terms it indicates that KG's version as to the background leading to the execution of the 2003 Agreement is incredible.  Like Mr Pow SC, I have difficulties in following the logic of such argument.  According to KG's case, the 2003 Agreement was signed about two years before Fan made the twelve-point demand.  As for the negotiation about the comprehensive agreement, Fan himself produced a copy of the draft.  Logical or not, it is common ground that the parties did discuss about signing a comprehensive agreement.  I do not think there is any justifiable criticism on PW1's evidence.

The 2003 Agreement

75.  The totality of the evidence points to the existence of the 2003 Agreement.  Of the two handwriting experts, I accept the evidence of PW10 and give no weight to the evidence of DW4.  According to PW10, what purports to be Fan's signature on the 2003 Agreement was indeed signed by Fan.  I find PW1, PW3 and PW4 credible.  KG's reasons for making a new agreement with Fan makes business sense, especially as three more Plaintiffs were going to participate in the cooperation and in view of the additional resources invested in Fan.  Their evidence are corroborative of each other.  Their evidence about the existence of the 2003 Agreement is further corroborated by KG's first warning letter to Fan as early as 12 October 2005, in which KG referred to the 2003 Agreement.  That was more than half a year before the Plaintiffs' decision to accept Fan's wrongful repudiation of the 2003 Agreement.  KG would not have quoted the 2003 Agreement, if it was not in existence, unless KG was executing a very well planned and fabricated case.  That I think was unlikely.  I accept KG's evidence.

76.  On the other hand, Fan's case has never been consistent.  His allegation of forgery is most obscure.  He raised that allegation some six years after the alleged event.  He never properly refuted the existence of the 2003 Agreement and alleged forgery.  He only asserted forgery for the first time in his live evidence in Court.  He offered no credible explanation for the late allegation of forgery.  His cavalier attitude towards engaging a handwriting expert is incomprehensible.  Equally so was his nebulous decision not to call Hui when Hui could have corroborated his evidence about the aborted execution of the 2003 Agreement.  He conducted his litigation without good faith.  Fan's withdrawal of his counterclaim showed his counterclaim was wholly devoid of merit and demonstrated his exaggeration and lack of good faith in this litigation.  I find Fan incredible.  I reject his evidence about the abortive execution of the 2003 Agreement and about the making of the oral agreement. 

77.  It is now common ground that PW4 had a meeting with Fan and Hui on 7 July 2003 in connection with the execution of an agreement.  Having rejected Fan's evidence, I have no difficulty in accepting the evidence of PW1, PW3 and PW4.  I find that Fan did sign the 2003 Agreement in the presence of PW4, which was handed over to PW3 who then passed it onto PW1 for signature on the following day.

78.  I now turn to examine the various alleged breaches in chronological order in which those breaches allegedly occurred.  Most of the alleged non-triggering breaches were continuing or repeated breaches.  They were related to distributing lecture notes which had not been registered and approved in breach of TG3 and the GN or related to placing advertisements without prior approval contrary to the GN.  Some of those breaches were associated with an aggravating feature.  Those aggravating features have drawn the focus of counsel's argument.  Where the breach is established, I shall state my view on the seriousness of the breach viewed in isolation. 

Failure to submit sample lecture notes for approval

79.  KG's allegation of Fan's breach of contract is based on the last bullet point of TG3(ii) and the GN(i), (ii) and (iv).  TG3(ii) provided:

「3(ii)    不可擅自於課堂內派發未經校方批核之宣傳品及筆記，而所有課堂用之教材均須由本校之同事派發。」

(Translation:  Tutor shall not unilaterally distribute during lectures promotion materials and notes which have not been approved by the school, and all teaching materials to be used in lectures must be distributed by the staff of the school.)

GN(i), (ii) and (iv) provided as follows: 

「由2003年7月14日開始，所有筆記均由導師自行印製，再安排運送到南華工業中心，… 所有筆記於印刷前都必須先將樣本送往本校C&M部門作記錄，一經收妥樣本，導師將會於24小時內收到所需筆記之數量及筆記編號，以便導師安排有關筆記印製事宜。…

  i.   筆記遞交事宜

-   …

-   遞交筆記樣本之限期為不少於10個工作天，並以最早上課之班別日期計算。

-   登記筆記樣本程序為1個工作天，有關MA會以電郵或傳真形式回覆筆記印刷數量及筆記編號。

-   …

-   任何未經登記之筆記均不可於班內派發。

ii.  筆記內容

-   筆記內容全應以教育為主，除導師自我宣傳有關該導師於本校舉辦之課程外，不能涉及其他宣傳成份。

-   若涉及報章、參考性資料、複製參考書或其他教材之筆記，必須自行申請版權，如因侵犯版權而導致之責任及罰款，均由導師全部承擔。

iii  筆記封面

-   …

-   每本筆記封面均須印有主題，以便識別。

iv.  逾期遞交筆記樣本

-  若未能如期(上課前10天)將筆記樣本送往C&M部門者，須自行安排運送筆記往各有關分校。

-  …

-  若筆記未能如期送到分校，以致未能上課者，均作課堂取消論，導師除了須要付有關之行政費用外，因此引致之學生退款亦會由導師全部承擔。」

(My emphasis underlined.)

(Translation:

With effect from 14 July 2003, all lecture notes shall be printed by tutors, tutors shall arrange for them to be delivered to South China Industrial Centre, all samples of lecture notes shall be first delivered to C&M Department for registration before printing, upon receipt of the sample lecture notes, tutors will be informed within 24 hours of the number of copies to be printed and the reference number of the lecture notes to facilitate printing of the lecture notes by the tutors. …

i   Matters relating to submission of notes

-  …

-  Sample lecture notes shall be submitted not less than 10 working days prior to the first lecture.

-  Time for processing registration of lecture notes is 1 working day, relevant MA will inform [the tutor] the number of copies to be printed and the reference number of the lecture notes by e-mail or fax.

-  No unregistered notes shall be distributed during classes.

ii   Contents of lecture notes

-  All contents of notes shall principally be educational, no other promotions shall be contained therein, except the tutor's own promotions in relation to courses organized by the school.

-  Tutor shall apply for copyright permissions if his notes involve any reference to newspapers, reference materials, duplications of reference books or other teaching materials.  Tutor shall be solely responsible for all liabilities and penalties arising out of infringement of any copyright.

iii  Lecture Notes Covers

-  …

-  There shall be a title on the cover of each lecture notes for identification purpose.

iv  Late submission of sample lecture notes

-  If a tutor is unable to submit sample lecture notes to C&M Department in time (10 days prior to date of the class), he shall arrange delivery of the lecture notes to each relevant branch school on his own.

-  …

-  If lessons cannot be conducted due to failure to deliver lecture notes to the branch school in time, it will be deemed cancellation of class.  The tutor shall be liable for all relevant administration costs and consequential refunds to students.)

(My emphasis underlined.)

80.  KG's case is that Fan was in repeated breach of the TG and GN in that since November 2004, except for one occasion, Fan had not submitted his sample lecture notes to C&M Department for registration and approval.  Despite numerous requests had been made by the relevant staff members of the C&M Department and by PW3 to Fan and his assistant for submission of sample lecture notes, Fan ignored them or refused to comply.  This is one of the breaches alleged in the first warning letter.  Fan does not dispute that he had not submitted his lecture notes for registration but argues that it was not necessary to do so under the relevant provisions of the TG or GN.  Mr Lam submits that in addition to the TG and GN, there were three other relevant documents, namely, the minutes of meeting on 7 July 2003,《05-06 年度導師筆記安排方案詳情》(the 05-06 Detailed Arrangements for Tutors' Lecture Notes) (“05/06 Arrangements”); the application form for lecture notes submission and the reply form for lecture notes registration (“lecture notes registration forms”).  The issue in dispute involves an interpretation of these documents.  I now turn to consider the interpretation of these documents and how the system developed chronologically. 

81.  Firstly, Mr Lam referred to TG4 which contains extensive detailed provisions concerning the submission of lecture notes which were to be printed by KG but there was no mention about submission of lecture notes for prior approval or submission of lecture notes which was not required to be printed by KG.  He submits that it was highly unusual that no reference was made to submission procedure for self printed lecture notes at all in the same document and hence the logical conclusion is that in reality there was no requirement that lecture notes must be submitted for approval.  There is no dispute that lecture notes may be printed by KG or by the tutors.  TG4 also mentioned about lecture notes prepared by the tutors「自製之筆記」.  However, the GN contained detailed provisions about printing and registration.  It is simply not right to reach the conclusion as Mr Lam tries to persuade me to reach by looking at the absence of provisions about registration or approval in the TG without looking at the GN.  The regime must be looked at as a whole by considering all relevant and existing provisions.

82.  The regime stipulated in the commencing paragraph of the GN is that with effect from 14 July 2003, all lecture notes shall be printed by tutors, but sample lecture notes shall be submitted to C&M Department for registration before printing.  Upon receipt of the sample lecture notes, C&M Department shall notify the tutor within twenty-four hours the registration number of the lecture notes and the number of copies to be printed.  That was the basic regime.  GN(i) required that sample lecture notes must be submitted to C&M Department not less than ten working days prior to the first lecture in which the lectures notes would be required, the time required for processing the registration was one working day and un-registered lecture notes may not be distributed in class.  GN(ii) stipulated that the contents of the lecture notes must principally be related to educational purpose and may not include promotional material other than the tutor's self promotion material within KG.  GN(iii) required, among other things, that the subject title of the lecture notes must be printed on the front cover of the lecture notes.  GN(iv) provided that if the sample lecture notes could not be delivered to C&M Department ten days prior to class, the tutor had to personally arrange delivery of the lecture notes to the relevant branch schools and if the lecture notes could not be delivered on time resulting in cancellation of classes, the tutor had to bear the related administration fees and refund of course fees occasioned.

83.  Mr Lam argues that under the above provisions, all lecture notes were to be printed by the tutor and there was no longer any need for submission of the sample lecture notes to C&M Department for approval before printing.  The tutor only had to register the lecture notes with C&M Department.  He submits that the sole function of C&M Department was to give the lecture notes a reference number for registration purpose and to advise the tutor of the number of copies to be printed.  The tutor shall deliver the lecture notes to the relevant branch schools.  He emphasises the significance of lack of mention about approval under the TG or GN. 

84.  Mr Pow SC argues otherwise.  While the tutor was responsible for printing the lecture notes with effect from 14 July 2003, under the terms of the commencement paragraph of the GN, all sample lecture notes must be submitted to the C&M Department for registration.  The language used was mandatory「必須」and covered all lecture notes「所有筆記」without exception.  Most importantly, the submission must be made before printing.  If registration did not include an element of checking and approval, there was no need to require that the sample lecture notes be registered before printing.  It is simply beyond argument that all sample lecture notes intended to be distributed in class must be submitted to the C&M Department for registration before printing, though what the C&M Department did with registration is open to argument. 

85.  Mr Pow SC argues that the function of C&M Department was not merely to allocate a reference number and to inform the tutor of the number of copies to be printed, but included the function of approval.  His argument is supported by the TG3(ii) which provided that tutors shall not distribute notes in the classrooms which had not been approved by the school and all teaching materials to be used in the classrooms shall be distributed by staff of the school.  Although the GN was silent about C&M Department's function in approving the sample notes, read together with the TG, the lecture notes must somehow be approved before they may be distributed in class.  This implies that the function of registration includes an element of approval.  Indeed, that was the way the GN was understood by PW3 and how C&M Department, according to PW3 and PW7, carried out its function as the approving authority.  C&M Department checked the consistency of the sample lecture notes as regards its contents to ensure that they contain only educational material and that the subject title of the lecture notes was printed on the front cover.  C&M Department checked for unnecessary promotional or advertising materials or materials which may infringe copyright.  This was to ensure that the lecture notes comply with the requirements of the GN(ii) and (iii).  If the process of registration did not include an element of approval, there was no way KG could ensure compliance of the relevant provisions of the TG and GN. 

86.  Some minor amendments to the GN were introduced on 27 May 2003 and Fan signed an acknowledgement on 2 July 2003 to signify his acceptance of the amendments.  On 7 July 2003 a meeting was held in which the new procedure was explained.  Under paragraph 1 of the minutes of the meeting, it was stated that under the new procedure tutors were required to submit their sample lecture notes to C&M Department for registration in order to check if the sample lecture notes would infringe copyright.  Thus, it is clear that registration included a process of checking and approval.  Fan attended that meeting and signed his signature indicating that he would comply with the procedures. 

87.  Furthermore, in answer to an inquiry about the new procedure conducted by PW7, Fan completed a questionnaire dated 16 September 2003 in which he wrote in his own handwriting to the effect that he printed and delivered his own lecture notes and submitted them to C&M Department for approval before distribution in class.  This is the clearest evidence in which the GN was understood and followed by Fan in September 2003.  I think on a proper construction of the TG and the GN, it is beyond argument that tutors were required to submit sample lecture notes to C&M Department for registration which included an approval process.

88.  Next, Mr Lam argues that the approval process was altogether dispensed with under the 05/06 Arrangements introduced by C&M Department which offered tutors three options, namely Plan A, Plan B and Plan C.  Under Plan A, a tutor was required to submit his sample lecture notes to C&M Department ten days before the lecture for printing and delivery and C&M Department would charge the tutor a fee in respect of each student.  Under Plan B, a tutor would print his own lecture notes and deliver them to KG's collection centre for delivery to the relevant branch schools and C&M Department would also charge the tutor a small fee in respect of each student.  Under Plan C, a tutor would print and deliver his lecture notes to the appropriate branch school.  The tutor was obliged to take away the surplus copies as KG would not provide storage facilities.  C&M Department would not charge the tutor any fee under Plan C.  Fan opted for Plan C.

89.  Under Plan C, the tutor was required to register the lecture notes and obtain a registration number which shall be printed on the top right hand corner of the front cover of the lecture notes.  If coloured front cover was to be used, the tutor shall submit the cover to C&M Department for approval.  A copy of the lecture notes would be kept by the branch school in which the first lecture was held for record purpose.  The 05-06 Arrangements were silent about approval as was the GN.  Mr Lam stresses the significance of the words “for record purpose” and argues that under Plan C, what was required was to obtain a registration number for the lecture notes and there was no requirement for approval.  He submits that registration meant providing a copy to the branch school for record purpose.

90.  PW3 and PW1 explained that there was no difference between the 05-06 Arrangements and the arrangement under the GN as regards registration and approval.  Mr Lam criticises PW3's by referring to her e-mail dated 28 April 2005 chasing Fan for submission of sample lecture notes in which PW3 only mentioned the need for a copy for record purposes and not for approval.  Mr Lam also criticises PW1's credibility because while asserting the approval process was more important than registration, she failed to mention the duties of C&M Department included approval of lecture notes.  I think the criticisms are neither here nor there as the lecture notes had already been distributed without approval and PW3 had to accept a fait accompli whereas PW1's failure to mention the duty of approving lecture notes was a trivial omission, especially if KG took the view that registration included approval.

91.  Mr Lam also referred to the express provision requiring approval for coloured front cover under Plan B and Plan C as distinct from the lack of such requirement under Plan A.  He argues that if approval for the lecture notes were needed, it would have been expressly provided for just like the coloured front cover.  PW3 and PW7 explained that approval was required for the coloured front cover under Plan B and Plan C because coloured front cover would most likely involve designs which might not be in line with KG's image and policy.  Under Plan A, as C&M Department was responsible for printing, it would have ensured compliance in any event.  Apart from that, they said that in respect of the requirement for registration and approval, the 05-06 Arrangements were no different from that under the GN.

92.  Next, Mr Lam referred to the lecture notes registration forms.  He submits that in the forms there was no mention about approval and the forms were not designed to indicate whether approval was given, by whom it was given or what amendments were required.  He contrasted those forms with the application form for advertisement, Form PR-02《導師自製宣傳品申請表》(application form for promotional material prepared by tutors), which contained reference to such details which were relevant to approval. 

93.  There were two different registration forms used.  For Plan A, the form stated that the tutor shall submit sample lecture notes for printing not less than ten days prior to the first lecture and that registration procedure would take one day.  For Plan B and Plan C, the form stated that the tutor shall submit the sample lecture notes for registration before printing and that registration procedure would take one day.  Under Plan A, C&M Department was responsible for printing the lecture notes.  Those forms are consistent with the procedure of registration and approval according to PW1 and PW3.  As the printing process included registration and approval, hence there was no need to specifically provide for registration in the registration form under Plan A.  However, under Plan B and Plan C, the tutors were responsible for printing.  Hence, the registration form specifically required the tutors to submit their sample lecture notes for registration before printing. 

94.  Both the TG and the 05-06 Arrangements were silent about approval.  But, despite the ambiguity caused by the use of the word “registration”, it is significant that the 05-06 Arrangements and the lecture notes registration forms under Plan B and Plan C stated that the lecture notes must be registered before printing.  This is most significant.  If approval was not part of the registration process, there was no need for C&M Department to be concerned about the sequence of registration and printing.  Apart from giving the lecture notes a registration number and informing the tutor how many copies to printed, why was C&M Department so concerned that the notes must be registered first before printing?  The only inference is that registration includes an element of approval, such as checking for infringement of copyright particularly.  On a proper construction of the documents, it is clear that registration under the GN included an element of approval.  The practice adopted by KG and the other tutors under the 05-06 Arrangements showed that registration and approval were still required.  There is no reason to construe the 05-06 Arrangements otherwise. 

95.  Fan's pleaded defence is that if the tutor printed his own lecture notes and that KG's logo was not used, there was no need to obtain approval.  This defence is inconsistent with Fan's acknowledgement in the questionnaire dated 16 September 2003.  It is also contrary to TG3(ii) and the lecture notes registration form.  His second defence is that KG were well aware that he did not provide sample lecture notes for approval between November 2004 and October 2005 and took no action, impliedly suggesting that KG condoned his conduct or that approval was not required.  However, there is incontrovertible evidence that PW3 chased him for sample lecture notes by e-mail dated 28 April 2005 and that the breach was one of the breaches complained of in KG's first warning letter dated 12 October 2005.  His third defence is that the lectures notes distributed between November 2004 and October 2005 were identical to those distributed in 2002/03 and 2003/04 in which samples had been provided to C&M Department and approval obtained.  But no such evidence was presented at trial.  In his first witness statement, Fan also alleged that since his admission as a shareholder of the 4^th Plaintiff, he was not required to submit sample lecture notes for approval.  This is a departure from his pleaded defence.  Fan's defences are not supported by evidence and are incredible. 

96.  Mr Lam referred to the lecture notes of another Chinese language tutor, Siu Yuen, which contained undesirable contents such as sexy girls wearing bikinis.  He suggests that those lecture notes indicated that there was in reality no element of approval at all.  I think those lecture notes only demonstrated that KG's attitude in approving the lecture notes was rather relaxed but not that there was no requirement for approval.  In conclusion, I find Fan was in breach of the TG, the GN and the 05-06 Arrangements.

97.  Mr Lam submits that KG never took the breaches seriously.  By itself, each of the breaches was not a serious breach.  The breaches were repeated or continuing since November 2004.  KG took no action about the breaches until 12 October 2005 after Fan was in trouble with the Education and Manpower Bureau for his statement in the 756^th issue of Yes! magazine when the breaches were formally raised.  Until then, KG tolerated the breaches.  However, even after the warning letter of 12 October 2005, Fan deliberately persisted in the breaches and two of those further breaches involved breaches of other provisions of the GN and aggravating features.  Except for those two incidents which are analysed below, there is nothing to suggest the lecture notes had otherwise been inappropriate or infringed copyright.  Except for those two breaches, the breaches prior to 12 October 2005 were just technical breaches with no serious consequence.  I shall deal with those two other breaches separately. 

Displaying the marking scheme of Hong Kong Examinations and Assessment Authority

98.  KG alleged Fan of distributing lecture notes in class without prior approval in breach of TG3(ii), GN(i) and the last bullet point of the GN(ii) (see paragraph 79 above for the text of these provisions).  The breach was aggravated by the fact that the lecture notes was the marking scheme of the Hong Kong Examinations and Assessment Authority (“HKEAA”) and its distribution involved infringement of HKEAA's copyright.  Thus, the breach complained of is similar to the one dealt with in the previous section, i.e. failure to submit lecture notes for registration and approval. 

99.  KG's case is that on 6 May 2005, KG received a complaint letter from the HKEAA that Fan had exhibited a copy of the marking scheme for 2005 Advanced Level Use of EnglishExamination during his tutorial class and promised to distribute photocopies of the marking scheme to his students on 4 May 2005.  HKEAA threatened to take firm action if contents of the marking scheme had been disclosed to students.  The HKEAA wrote:

“It has been reported to us that one of your English teachers, Mr K Oten showed the Authority's 2005 Use of English marking scheme to students during the evening class held on 4 May 2005.  As reported, the mentioned teacher had also indicated that the marking scheme would be distributed to students later on.

  …

  I urge that your school will take prompt action to stop the alleged action from taking place in your school and instruct your staff accordingly.  If we discover that your school or teachers have disclosed the contents of the Authority's marking scheme to students, we will take firm action against the relevant parties.”

100.  PW2 and Anthony Leung interviewed Fan on or about the same day.  Fan admitted that he had shown the marking scheme to his Form 6 students on 4 May 2005 and undertook not to do the same.  This incident was mentioned in KG's first warning letter to Fan dated 12 October 2005 five months later (see paragraph 120 below).

101.  In his Re-Amended Defence and Counterclaim, Fan denied he had ever distributed any marking scheme to the students and claimed to have no knowledge of the TG referred to by KG.  In his evidence, however, Fan did not dispute that he had shown the marking scheme in the manner as alleged in the letter of HKEAA.  Mr Lam's principal submission is that showing a document through a projector as distinct from delivering hard copies of the document does not amount to distribution within the meaning of the TG and GN.  He submits that the relevant provisions of the GN are related to printing and distribution of hard copies of lecture notes.  Hence, when TG3(ii) and the relevant provisions of the GN are read together, it is difficult to see how those provisions can be relevant to projections of an original copy of the marking scheme through a projector.

102.  Mr Pow SC submits that the TG and GN were drafted by laymen and should be understood in that context.  Hence, he submits that the act of showing the contents of a document by a projector to students in class is not materially different from distributing hard copies of that document to students.  I agree.  KG attached great importance to observing the Copyright Ordinance.  GN(i) laid down the procedure for obtaining approval for printing of lecture notes and GN(ii) required the tutor to obtain permission from copyright owners of the teaching materials to be duplicated from reference books, newspapers or other sources before incorporating them in the lecture notes.  Mr Pow SC also refers to a notice dated 23 June 2003 issued by KG and acknowledged by Fan reminding him to pay attention to the contents of the Copyright Ordinance before photocopying any notes, articles, newspapers, reference books and other published works.  Hence, one of the purposes of GN(ii) was to ensure by an application and approval process that tutors comply with the Copyright Ordinance.  Copyright in literary works could be infringed by visual or acoustic presentation: see section 27 of Copyright Ordinance, Cap 528.  There is a high risk of infringement of copyright associated with teaching.  Given such factual background, the TG should be given a broad and liberal interpretation.  In my view, so long as the marking scheme was to be used as teaching material in the lectures, it formed part of the lecture notes.  Fan was required to seek approval for its distribution in accordance with the TG3(ii).  In projecting the image of the marking scheme by a projector on the screen, he was disseminating the information contained in the marking scheme to the students in the classroom to read.  The method of delivery of information contained in the marking scheme is immaterial.  It made no difference whether the marking scheme was to be projected on the screen or distributed by way of hard copies.  Either method of dissemination is distribution.

103.  Next, Mr Lam argues that there is no evidence whatsoever of distribution of an unauthorized and/or unapproved reproduction of the marking scheme and KG have failed to establish their pleaded case on the evidence.  This is a civil case and not a criminal case where the prosecution has to prove each and every element of the offence charged beyond reasonable doubt.  If it is Fan's defence that the distribution or display of the marking scheme was authorised, he should have pleaded to that effect and then KG would have adduced evidence of lack of authority.  Furthermore, whether Fan had authority to distribute the marking scheme is a matter solely within his knowledge.  If pleaded, it would have been a positive averment and the burden is on Fan to prove due authority and not for KG to prove lack of authority.  In any event, Fan did not dispute that what he had displayed was the marking scheme.  Thus, the letter from HKEAA speaks for itself.  I am surprised by Mr Lam's submission.

104.  Mr Lam referred to the minutes of meeting dated 7 July 2003 in which it was suggested that marking scheme would be available for sale in September 2003 and that KG had obtained legal advice to the effect that tutors may distribute the marking scheme to students in class.  The minutes also suggested that marking schemes might be given to student representatives to make photocopies for distribution in class.  Hence, Mr Lam submits that in the light of the minutes of that meeting, despite GN(ii), tutors were allowed to make copies of the marking scheme and distribute them in class.  He submits that in the light of then prevailing practice in KG, what Fan did by displaying the marking scheme was less than distributing hard copies and was perfectly legitimate.

105.  In reply, Mr Pow SC referred to KG's e-mail sent three days later to all their tutors drawing their attention to a news report in the Apple Daily on 10 July 2003 about infringement of copyright in literary works by a photocopying shop and reminding their tutors the need to apply for permission to use works protected by copyright.  With respect, I do not consider that e-mail sufficient to revoke the resolution reached at the meeting of 7 July 2003.  The e-mail suggested that what KG was solely concerned was to protect their own interest so that any liability arising from infringement of copyright would be borne by the tutors themselves.  The e-mail was vague and did not unequivocally revoke what was resolved at the meeting of 7 July 2003.  From the equivocal way in which KG approached the news report on the Apple Daily, I think KG was probably happy for the marking schemes to be used as teaching material and turned a blind eye.  The purpose of the e-mail was to absolve themselves in case of infringement and to restrict the liability to the tutors.  That certainly was KG's position until the complaint was received from HKEAA.  However, that resolution was not the defence put forward in the Re-Amended Defence and Counterclaim.  But even if pleaded, it is not a valid defence.  Fan was still in breach of the TG and the GN in failing to submit the marking scheme as part of his lecture notes to KG for approval.  But in the light of the minutes of meeting of 7 July 2003, Fan should reasonably be excused. 

106.  In conclusion, Fan was in breach of the TG and GN by displaying the marking scheme which infringed the copyright of the HKEAA and without first having his lecture notes registered with C&M Department.  But in view of the attitude of KG generally towards Fan's breaches of this nature and specifically about disclosure of marking schemes, the breach was a very minor one and should reasonably be excused.  This is particularly so in view of the resolution passed during the meeting on 7 July 2003 and that Fan had instantly undertaken not to commit the same again.  There is no evidence of further similar breach or threatened breach of similar nature.  KG resurrecting this incident in their first warning letter dated 12 October 2005 five months later was just fault finding and served no purpose.  That breach must be treated as spent.

The Otenian warrant system

107.  KG's allegation of Fan's breach of contract is for breach of TG2(i), which required the tutor to provide details of his course to C&M Department.  This was one of the breaches mentioned in the first warning letter of 12 October 2005 (see paragraph 120 below). 

108.  Prior to commencement of enrolment for summer courses on 23 June 2005, Fan's assistant applied to PW3 for a priority enrolment system known as《報名令牌制度》(“warrant system”).  Under the warrant system, students holding warrants「令牌」 issued by Fan were to be given priority in enrolment to his live classes.  In order to honour the warrant, C&M Department had to inform the branch schools about the warrant system and related arrangement and to give them samples of the warrant.  Despite repeated requests by PW8 and staff of C&M Department, Fan failed to provide them with samples of the warrant even until the date of enrolment.  As enrolment to live classes was limited, the absence of details of the system and a sample of the warrant created tremendous amount of confusion in the tutorial schools.  The staff had no way of knowing whether the warrant presented was genuine or if a student was the holder of the warrant.  On 23 June 2005, which was the first day of enrolment for summer courses, the counter staff could not ascertain if a student was the holder of a warrant and had to seek confirmation from Fan's assistant, Ip Ho Wing (“Ip”).  That held up the enrolment procedure and even affected enrolment to other courses.  Later that afternoon, some students presented a paper warrant and demanded enrolment to live classes.  The counter staff had no alternative but to enrolment them if they were found to have been registered as KG's students before.  On the second day of enrolment, many more students presented paper documents claiming to be warrants and sought enrolment to live classes.  All vacancies in the live classes were filled up and some warrants could not be honoured.  All along, Ip did not respond to KG's enquiries about the warrant system or provide a sample of the warrant.  Fan also declined to explain the reason for the confusion.

109.  As a result of the experienced gained in the enrolment of the summer courses, PW3 and PW8 enquired from Fan for information relating to enrolment for the regular courses.  Again, Fan neglected to provide details about the warrant system for the regular courses, the number of warrants issued and a sample of the warrant.  On 12 August 2005, the first day of enrolment for regular courses, chaos also resulted.  The number of warrants presented were more than what Fan or his assistant had told C&M Department.  A lot of complaints were received and many warrants could not be honoured.  The chaotic situation and complaints were reflected in Fan's admission contained in his lecture notes issued to his students in regular course for Form 3.

110.  This complaint was formally raised in the first warning letter dated 12 October 2005 two months later.  Fan gave no explanation as requested in the first warning letter.  His solicitors only gave a blank denial in their letter dated 26 April 2006 in response to KG's letter accepting Fan's repudiation of the 2003 Agreement.  In his pleaded defence, Fan admitted that he devised the warrant system to streamline students and to assist them in the selection of courses but denied that the warrant system caused any delay in the enrolment procedure.  No particulars were pleaded.

111.  In his first supplemental witness statement, Fan said that he observed his students and hand-picked those whom he considered qualified to be Otenians and gave them an Otenian warrant which would give them priority in enrolment to his live classes.  In his evidence in chief, he supplemented his witness statement about the selection procedure.  He said that his assistant issued application forms to join K Oten English Team《永久奧天人申請表》(“Otenians application form”) to diligent students.  He interviewed the students during summer and selected students to be issued the Otenian warrant.  The warrant would give the student priority to enrol in his live classes on the first day of enrolment.  Under the warrant system, seats would be reserved for holders of Otenian warrants on the first day of enrolment and ten seats in each class would be reserved for non-warrant holders.  He said he had discussed the arrangement with PW8 on the telephone and she was aware of the warrant system.  Such particulars about the warrant system were mentioned for the first time in his evidence. 

112.  Fan said that the Otenian warrants were made of plastic like a visa card and were quite expensive.  Hence, he did not give a sample to each of the tutorial schools, but Ip had given a sample to C&M Department.  Then on the following day, PW8 asked for a soft copy and he instructed Ip to send PW8 a soft copy.  This was not pleaded and the allegation was also raised for the first time after three and half years.  The allegation was not supported by any documentary evidence.  He said that the confusion on 23 June 2005 lasted only for an hour. 

113.  In respect of the confusion on 12 August 2005, Fan's defence is that he had discussed with PW8 and improved on the warrant system by providing her with a list of the warrant holders.  As a result, the warrant system worked smoothly and that the confusion was caused by KG creating “live-video classes” and KG's staff reserving vacancies in the live classes for their own friends.  The “live-video classes” were video classes conducted in a classroom separated from the live class by a glass panel.

114.  Fan's evidence is in direct conflict with PW3's and PW8's.  The question for me is who to believe.  KG's case was clearly pleaded and supported by the evidence of PW3 and PW8.  Their evidence is cogent and clearly set out in their witness statements.  On the other hand, Fan's case was not clearly pleaded.  His first witness statement and first supplemental witness statement on this issue contained only three short paragraphs and were lacking in particulars.  Many of his allegations were disclosed only for the first time in his live evidence.  This affected to some extent the way in which KG could anticipate and negative his defence.  This is characteristic of the way Fan conducted his litigation and suggests the comprehensive account he gave in the witness box was made up of recent concoction.  Having observed his, PW3's and PW8's demeanour in the witness box and having regard to the way in which Fan conducted this litigation, I am satisfied that PW3 and PW8 are credible.  I accept their evidence and reject Fan's.

115.  Mr Lam submits that there is no dispute that under the warrant system ten places would be reserved for non-warrant holders and that was sufficient information for KG to implement the system.  Mr Lam argues that there was no need for KG to have an original warrant or to be informed of the exact number of warrants issued.  He puts the blame on PW3 for being meticulous.  With respect, I do not agree.  The problem was not so much in filling the ten places reserved for non-warrant holders.  In effect, Fan's warrant system was to reserve all but ten places to warrant holders.  On the first day of enrolment, there was no assurance that all places other than the ten reserved for non-warrant holders would be filled by warrant holders.  If those places were not filled, KG had to fill them by non-warrant holders or to run the risk of not having full enrolment or not being able to honour all the warrants.  There was therefore the need to know how many warrants had been issued or who the warrant holders were.  The system could not operate properly without the detailed information.  On the facts, however, it appeared that all the places were taken up and KG's worries were unwarranted.  But that did not mean there was no breach of the TG. 

116.  Accordingly, I find that Fan's failure to provide details of his warrant system to C&M Department as required by TG2(i) constituted a breach of the TG and such failure resulted in confusion.  However, I do agree with Mr Lam, that apart from some inconvenience and confusion, KG suffered no loss as all the places for live classes were filled.  The breaches were clearly technical and very trivial.  KG took no action to issue any warning letter to Fan in June or August 2005.  There was nothing to suggest there would be further similar breaches.  The breach must be deemed to have been spent.  Yet, KG felt it fit to resurrect this breaches in their warning letter of 12 October 2005.

The statement “全港最多ABC” in the 756^th issue of Yes! magazine

117.  KG's allegation of Fan's breach of contract is for placing advertisements without prior approval, in breach of TG5.  This breach led to a series of three warnings letters issued against Fan.  KG had an established procedure under which tutors are required to seek approval before they may place advertisements in the media.  In particular, TG5.2 required all advertisements must be approved personally by PW1.  The applications for advertisement were processed by C&M Department.  Tutors had to apply by filling in a form, PR-02.  The application would be vetted by PW3 and approved by PW1.  TG5.3(a) and (b) provided that the mode and contents of the advertisement may not be in breach of any laws of Hong Kong or contain mis-statements or exaggerations.  The essence of KG's complaint is that the advertisement was placed without their prior knowledge and approval and the method of promotion involved possible breaches of the laws of Hong Kong and unsubstantiated exaggerations. 

118.  There is no dispute that Fan caused to be published in the 756^th issue of Yes! magazine an advertisement containing a statement of「全港最多ABC」, i.e. the most number of ABC in Hong Kong (“questioned statement”).  That issue was published on 9 September 2005.  The statement resulted in a telephone complaint from the Education and Manpower Bureau to Anthony Leung.  The Education and Manpower Bureau demanded KG to produce evidence that Fan's students had acquired the most number of grades A, B and C in the open examinations in Hong Kong otherwise the advertisement would be deemed to be a misrepresentation and breach of section 86B of the Education Ordinance.

119.  Upon receipt of the complaint from the Education and Manpower Bureau, PW1 and PW2 interviewed Fan and requested an explanation.  According to PW1 and PW2, Fan admitted that he had neglected to apply for permission before placing the advertisement but asserted that he had instructed an independent agent to carry out a survey and had confirmation from his agent that his students obtained the most number of grades A, B and C in the Hong Kong Certificate of Education Examination.  PW1 gave Fan two options, either to withdraw the advertisement or to provide proof to substantiate the questioned statement.  PW1 also reminded Fan that he had to obtain prior permission before he might place advertisements in the media.

120.  Despite repeated demands, Fan failed to provide the substantiation he had offered to produce at the meeting.  In the meantime, KG discovered that Fan continued placing advertisements albeit without the questioned statement in the 757^th, 758^th and 759^th issues of Yes! magazine without KG's prior approval.  This led to a meeting on 12 October 2005.  Prior to the meeting, a three-page warning letter was drafted by KG's then solicitors, Messrs Robert Wang Solicitors.  The letter referred to the 2003 Agreement entered into between KG and Fan and listed the following six breaches of the TG and GN by Fan:

(1)   placing an advertisement in the 756^th issue of Yes! magazine without prior approval and claiming his students had scored the most number of grades A, B and C in the open examinations in Hong Kong;

(2)  placing advertisements in the 757^th, 758^th and 759^th issues of Yes! magazine without prior approval;

(3)  unauthorized reproduction of the 2005 Advanced Level Use of English Examination marking scheme of the HKEAA to students;

(4)  failing to provide sample lecture notes for approval;

(5)  issuing Otenian Warrants causing confusion; and

(6)  failure to provide course outlines causing inconvenience to KG's administration.

It should be noted that only the first two alleged breaches were current breaches at the time.  The third to fifth breaches were past breaches.  The sixth breach was a recent one which continued through to March 2006.

121.  On 12 October 2005, PW1, PW2 and another staff member interviewed Fan.  PW2 gave Fan the warning letter and asked him to read by himself.  Fan took five to six minutes to read the three-page letter.  In respect of the first breach, Fan was required to provide evidence to verify the questioned statement within three working days.  Then, PW2 asked Fan if the content of the letter was clear to him.  Fan replied that it was.  PW2 asked Fan to sign receipt for the letter and Fan signed.  Fan repeated that due to a momentary neglect, he failed to apply for approval before placing the advertisement and that he would give PW2 a report on the examination results to substantiate the questioned statement in the 756^th issue of Yes! magazine.

122.  By 25 October 2005, no reply was received from Fan in respect of the questioned statement.  On 28 October 2005, PW1 and PW2 interviewed Fan again and gave him the second warning letter dated 25 October 2005 requiring him to submit evidence within three days to support his questioned statement.  Fan did not raise any objection.  He said he would follow the TG.  He then signed an acknowledgement for receipt of the said warning letter.  Fan never provided the supporting evidence required.  He continued placing advertisements in the 761^st, 762^nd and 763^rd issues of Yes! magazine.  This led to the issue of the third warning letter on 4 November 2005. 

123.  On 4 November 2005, PW1 and PW2 had a meeting with Fan.  PW2 gave Fan the third warning letter demanding a written explanation for his failure to obtain approval for the above advertisements within three days.  Fan raised no objection to the warning letter and admitted that he failed to obtain approval due to neglect.  In respect of evidence in support of the questioned statement, Fan said that he was still awaiting report from his agent and would provide a copy of the report as soon as it was received.

124.  Fan did not dispute he had placed the advertisements.  His pleaded defence is that the questioned statement was nothing but a slogan designed to highlight the fact that he was a teacher of the English language and was not meant to carry any connotation nor was the questioned statement in the entire context of the advertisement capable of carrying any connotation in relation to the results obtained by his students.

125.  He did not dispute the above four meetings and the receipt of the three warning letters.  But he denied that the warning letters were given to him by PW2.  His evidence is that the warning letters were given to him by Anthony Leung though PW1 and PW2 were in the room at the material time attending to some other business.  He suggested that as Anthony Leung had left KG, PW2 stood in his place to give evidence about the delivery of the warning letters.  He said that he signed the acknowledgements because he was on good terms with Anthony Leung and did not wish to be difficult with him.  Thus, there is no dispute that he received the warning letters and committed further breaches despite warning.  Even if his assertions above were true, they cannot amount to any defence.

126.  Fan said that he discussed with Anthony Leung about a possible explanation for the advertisement to be given to the Education and Manpower Bureau, which was that the questioned statement was published because he was a teacher of English and would use alphabets, A, B and C most.  In his second supplemental witness statement which he adopted as his evidence, he said that the questioned statement was to echo another tutor, Ken Chan's slogan of guaranteeing his student to obtain grade A, B or C「保證你攞ABC」 on the adjacent page of Yes! magazine; that the questioned statement was to highlight the fact that he was an English teacher and the subject which he taught used the alphabets A, B and C most frequently.  When it was suggested to him under cross-examination that the questioned statement must refer to examination grades, Fan changed and said that the questioned statement was to highlight he was an English teacher, he taught most vocabularies and many of his students obtained grades A, B or C.  When asked why he chose to use the superlative degree “the most number”「最多」instead of “many”「很多」, he gave the lame excuse that the most number sounds better and he was in a hurry.

127.  Fan was equivocal with what he intended the questioned statement to mean.  He was even undetermined as to what his case was.  If, as he said, the questioned statement was to echo Ken Chan's slogan, it is only too clear that he was referring to examination result.  The context in which the questioned statement appeared could only suggest to the reader that his students obtained the most number of grades A, B, and C in the open examinations in the English language subject in Hong Kong.  The connotation suggested by Fan is not just strained but absurd.  He offered no evidence to substantiate his statement.  The inference must necessarily be that it was an exaggerated or at least a mis-statement.

128.  Mr Lam submits that at the meeting in September 2005, PW1 and PW2 gave Fan two options, either to stop the questioned statement in the advertisements or to provide evidence to substantiate the questioned statement.  Mr Lam submits that as no similar advertisements had been placed after the meeting, Fan had by conduct chosen the second option and there was no need for Fan to provide evidence to substantiate the questioned statement.  With respect, Mr Lam is factually incorrect and his submission is inconsistent with Fan's evidence.  The options given to Fan were to withdraw the questioned statement or to substantiate it.  Nothing had been done by Fan to withdraw the statement.  Indeed Fan said he would substantiate the questioned statement and he had instructed an agent to make the necessary survey before placing the advertisements.  Clearly a reply was owed to KG.

129.  Next, Mr Lam submits that as KG's case is that the questioned statement contained misrepresentations or exaggerations, the burden of proof is on KG to prove the falsity of the questioned statement and not for Fan to prove its genuineness.  He further argues that as KG never produced any evidence about the falsity, KG has failed to establish this breach.  With respect to Mr Lam, KG's action is not for misrepresentation but for breach of contract, the breach being failure to seek approval for the advertisement in breach of the TG, which is not disputed by Fan.  The questioned statement is only part of the circumstances under which the breach was committed.  KG's burden was to prove there was no prior approval.  As submitted by Mr Pow SC, reference to TG5.3(a) and (b) is to show that contents of the advertisement that contravened the law or contained untrue or exaggerated statements cannot be expected to be approved.  Unless Fan could substantiate the questioned statement, he could not expect that his application for advertisement would receive approval.  The burden is therefore on Fan to prove the questioned statement was true.  If it was, it would have been most likely that KG would have approved the advertisement and the breach was just technical.  If the statement was not shown to be true, Fan could not expect approval would be forthcoming and the breach was substantial.

130.  Fan raised other defences to the effect that he had obtained approval for advertisement of all the issues, including the 756^th issue, of Yes! magazine or that such approval was not necessary.  It would be more appropriate and convenient to consider those defences in relation to this issue together with the other issues in that context in the next section.  For the present purpose, suffice it is to say, I reject those defences.  The advertisement in the 756^th issue of Yes! magazine was clearly placed in breach of TG5.3(b).  As Fan did not substantial the truthfulness of the statement, the breach was substantial.

131.  However, Fan was able to produce evidence that internal advertisements found on the shelves in KG's tutorial schools on the third day of trial contained similar statements made by other tutors, namely Siu Yuen and Wilson Liu which would have supposedly been disapproved by PW3.  The advertisements included statements to the effect that the students of those tutors scored the most number of grade A awards.  Under cross-examination, PW3 replied that she had approved the advertisements subject to certain amendments and put the blame on her staff, Chan Kam Wah, who replaced PW8 for failing to take follow up action.  PW3 said she had no knowledge of the advertisements and as a result of the evidence disclosed in Court, she issued warning letters to Chan Kam Wah and the two tutors concerned.  I think PW3's lack of knowledge is no answer.  The contents of the advertisement of Siu Yuen suggest the advertisements had been standing on the shelves for two consecutive years since 2006/2007 and 2007/2008.  The state of affairs could not have been the result of oversight by Chan Kam Wah alone.  It suggests that KG never strictly enforced the terms of TG5.3(b).  Given the attitude of KG towards the breach at the time and now two years later, I am of the view that the breach, albeit substantial, had never been taken seriously by KG and was therefore trivial.

Advertisements without approval

132.  This alleged breach is associated with but distinct from the earlier breach which was related to advertisement in the 756^th issue of Yes! magazine only.  The facts are as stated in paragraphs 117 to 131 above.  This breach was raised in the first and third warning letters dated 12 October and 4 November 2005.  In gist, upon receipt of complaint from the Education and Manpower Bureau about the questioned statement in the 756^th issue of Yes! magazine, KG discovered that Fan had not applied for approval to place advertisements in the 756^th to 759^th issues.  While waiting for Fan's production of evidence to substantiate the questioned statement, KG discovered that Fan had continued to place advertisements in the 761^st to 763^rd issues without prior approval, albeit without the questioned statement.  KG overlooked the fact that Fan had also advertised in the 755^th and 760^th issues without approval. 

133.  Fan's defence has undergone numerous changes which indicated that he was quite undetermined as to what his defence was.  In respect of the unauthorized advertisements in the 756^th to 759^th issues of Yes! magazine, Fan never offered any explanation as required by the various warning letters.  In his solicitors' letter dated 26 April 2006 in response to KG's letter accepting his repudiation, his solicitors gave a bare denial in respect of all the unauthorised advertisements and made an incomprehensible if not incredible allegation that Fan never received the various warning letters “because the said letters were presented to [Fan] to sign for acknowledgement purpose only”.

134.  In his Defence and Counterclaim, Fan's defence was that advertisements were originally placed by KG on behalf of the tutors, but later Fan found the system unsatisfactory and had agreement with KG to place the advertisement himself provided KG's logo was not used.  Thus KG's approval was not required in respect of the advertisements in the 756^th to 759^th issues as KG's logo was not used.  Then after the advertisements had been advertised in a few issues, PW1 asked him to insert the logo and Fan agreed.  This defence is plainly contradicted by TG5 which showed that since March 2003 tutors were allowed to place advertisement by themselves rather than through KG.  It is also contradicted by Form PR-02 which expressly stated that prior approval and KG's logo were required.

135.  In the Re-Amended Defence and Counterclaim, the newly pleaded defence is that once approved, an advertisement with the same design can be placed without prior approval.  Thus, only advertisements involving a new design required approval.  Fan alleged that as the advertisement in the 755^th issue had received approval, no approval was necessary for the advertisement in the 756^th issue which used the same design.  Similarly, as the design in the 757^th issue had been approved, no approval was necessary for the advertisement in the 758^th and 759^th issues.

136.  In his second supplemental witness statement in which Fan addressed to this defence, he said that the advertisements in the 751^st to 754^th issues, 755^th and 756^th issues, 757^th to 759^th issues, 760^th and 761^st issues and 762^nd and 763^rd issues were the same.  He said as he had applied for approval for the advertisements in the 751^st, 755^th, 757^th, 760^th and 762^nd issues, it was not necessary to seek approval for the other issues.  He said on every occasion the approval was relayed to him by PW7.  However, his evidence was fatally rebutted by PW7.  She was an executive officer of C&M Department responsible for processing applications for advertisements.  She produced incontrovertible evidence that she was on maternity leave from 23 July to 2 October 2005 when the 751^st to 759^th issues were published.  She returned from maternity leave on 3 October 2005 when the application for advertisement in the 760^th issue would have to be made, but she could not find any such application in KG's records.  Mr Lam seeks to save Fan's credibility by putting forward the explanation that Fan mixed up the identity of the staff from C&M Department who relayed PW1's approval to him for PW7 and that the approval was received by Fan's assistant and not Fan personally.  Mr Pow SC criticised Mr Lam's submission as shocking as such explanations had never been offered by Fan or solicited by Mr Lam during Fan's evidence in chief or in re-examination.  If Fan had genuinely mixed up the identity of the person who relayed the approval to him, he would labour under that misapprehension even in the witness box.  However, Fan's solicitors had been supplied with the witness statement of PW7 well in advance.  There was nothing to prevent them from seeking clarification from Fan.  In any event, the point should have been dealt with in evidence rather than by way of counsel's submission.  In any event, Mr Lam has difficulties in maintaining the second limb of his argument as it was unequivocally stated in Fan's second supplemental witness statement that the approval was relayed to Fan personally and not to his assistant.  This is Fan's major defence in respect of this breach.  His credibility was damaged beyond repairs.

137.  Fan's defence that no separate approval was needed for advertisements involving identical design is also contradicted by the clear words of the Form PR-02 which required the tutor to fill in the name of the magazine and the date of the publication.  PW3 and PW7 explained that the information was necessary for them to monitor compliance.  Though the evidence revealed that such monitoring process was not effective or absent, their evidence is nevertheless credible as contrasted with Fan's. 

138.  Fan also departed from his pleaded defence under cross-examination.  He alleged that since his admission as a shareholder of the 4^th Plaintiff, KG was more flexible with him as regards enforcement of the TG relating to promotional material and he could even discuss the matter with PW1 direct.  He said that what was important was to submit the draft advertisement to KG and inform KG where the advertisement would be placed, but approval was not necessary.  He also said that if KG's logo was not used, he only needed to apply for approval but it was not necessary to wait for approval.  If approval was not necessary, what was the purpose of submitting a draft of the advertisement and informing KG where the advertisement would be placed?  Such evidence suggests that approval was necessary.  His evidence is inconsistent with his first witness statement in which he said that the provisions and restrictions on promotional activities set out in the TG was simply not applicable to him.  His evidence is also inconsistent with the completed Form PR-02 signed by his assistant on his behalf in June 2005 after he had become a shareholder.  Fan said that at one stage it was not necessary to fill in Form PR-02 in respect of advertisements in magazines.  However, eventually he was told by his assistant that the form had to be filled in for all promotional materials.  That simply suggests that approval was necessary for all promotional materials.  The above evidence is also inconsistent with Fan's own evidence that PW7 relayed PW1's approval to him in respect of the new designs in the advertisements placed in the 751^st, 755^th, 757^th 760^th and 762^nd issues.  Fan was completely muddled up in his evidence, which simply suggests that his defence was concocted and he was still concocting his case while in the witness box.  He is utterly incredible.

139.  Mr Lam argues at some length that it was improbable and illogical for KG to have required approval for subsequent advertisements of an identical design.  I do not intend to rehearse those arguments except to say that I do not agree with them.  In view of Fan's defence and his evidence, those arguments are unconvincing.

140.  Mr Lam also argues that KG's evidence that no approval was obtained by Fan in respect of his advertisements in Yes! magazine is suspect because no complaint was made by KG in relation to Fan's advertisements in respect of issues other than the 756^th, 757^th, 759^th, 762^nd and 763^rd issues.  In particular KG missed out the advertisement in the 755^th issue which contained an identical questioned statement and also missed out the 760^th issue.  I have no doubt that KG did not monitor the advertisements or did not properly monitor them until the complaint was raised by the Education and Manpower Bureau about the 756^th issue.  But that does not mean there was no system requiring approval, particularly in the light of the evidence.  I find that Fan was in breach of TG5.2.

141.  Despite the presence of a system for seeking approval before placing advertisements in the media or within the tutorial schools, in view of paragraph 131 above, I have no doubt that KG's attitude towards the unapproved advertisements was very relaxed.  Not until the complaint was raised by the Education and Manpower Bureau about Fan's questioned statement in the 756^th issue, KG took no action against unapproved advertisements.  Even on KG's case, a number of advertisements in Yes! magazine had been placed without approval.  Mr Pow SC submits that if Fan did not apply, KG could have no knowledge that unapproved advertisements had been placed.  However, according to PW8, she received free copies of Yes! magazine from the publisher because of the large number of advertisements KG placed in the magazine.  The fact that a large number of unauthorised advertisements went un-sanctioned simply suggests that KG took a very relaxed attitude over the matter.  Except for the 755^th and 756^th issues, PW1 also admitted under cross-examination that she would have approved the advertisements had Fan made the applications.  In the circumstances, the breaches were merely technical and in any event had hitherto not taken seriously by KG.  Probably, the breaches were trivial and had no effect on KG as well.

Failure to submit course outline within prescribed time limit

142.  KG's complaint of Fan's failure to submit course outline within prescribed time limit was based on TG2(i) which required tutors to submit details of their new courses to C&M Department in accordance with time schedule set down by KG.  The details included course outline, dates, duration, number of sessions, location where the course was to be held and mode of teaching.  The courses should conform with the annual programme of KG.  There is no dispute that Fan failed to submit course outlines within prescribed limit on the following occasions:

Name of course	Date of application form sent to Fan	Time limitto submit course outline	Date of submissionby Fan
Regular Course 2005/2006	6/7/2005	12/7/2005	21/7/2005
F5/F7 Intensive Course	13/10/2005	25/10/2005	19/11/2005
F5/F7 Capture A Course	22/12/2005	3/1/2006	6/1/2006:   draft submission only19/1/2006:  F7 particulars submitted13/2/2006:  F5 particulars submitted
F3/F4/F6 Intensive Course	11/3/2006	15/3/2006	21/3/2006

It should be noted that only the first of the above alleged breaches was raised in the first warning letter.  No warning had been issued in respect of the other breaches allegedly committed after the issue of the first warning letter.

143.  PW8 had to repeatedly chase Fan for the course outlines.  She even had to prepare the submissions for him by obtaining the details from him over the telephone and then fax the completed document to him for his signature.  As a result of Fan's delay, C&M Department had to work overtime to ensure that the brochures would be printed before enrolment dates.

144.  Fan's pleaded defence is a bare denial.  In his first supplemental witness statement, Fan maintained his denial.  He said he was on time in submitting course outline to KG for the purpose of preparing a black and white brochure.  He was only occasionally late in submitting information for the colour brochure.  The colour brochure contained information about the profile of members of his teaching team and was mainly for promotional purposes.  As his courses were always filled by the time of publication of the colour brochure, the brochure had no promotional value.

145.  In his evidence at trial, Fan no longer disputed that his submissions were late, but alleged that the time limit specified in the e-mails were not true deadlines and were not strictly enforced.  He said that PW8 permitted him to submit part of the required documents first, particularly since he was admitted as a shareholder of the 4^th Plaintiff.  Despite his submissions were late vis-a-vis the stipulated time limit, they were no later than enrolment dates and C&M Department could catch up by working overtime and print the brochures before enrolment dates.

146.  Mr Lam submits that the time limits specified in the e-mails only marked the beginning of a process of getting the course outline finalised.  Mr Pow SC submits that Fan was departing from his pleaded case and was excusing himself and tapping the real deadline or testing the limits which C&M Department could coupe with his dilatory conduct because of his privileged position as a shareholder of the 4^th Plaintiff. 

147.  Regardless whether Fan departed from his pleaded case, it is just beyond dispute that Fan failed to meet the deadlines.  Even assuming that the deadlines were just tentative deadlines for the purpose of setting the two-way process in motion as submitted by Mr Lam, Fan still had failed to submit anything to set the process in motion.  Fan excused himself by saying that compilation of the course outlines for the many courses he was responsible was particularly time consuming and he was busily engaged in teaching duties.  This is not a valid excuse.  Despite the large number of courses he operated, he only needed to prepare one outline for each type of course.  Specifically in respect of his lateness in submitting course outlines for the Capture A Courses, Mr Lam submits that Fan's e-mail to PW8 dated 6 January 2006 should have settled the matter and demonstrated the two-way process.  With respect, that is a total misinterpretation of the evidence.  That e-mail showed that Fan had given PW8 a plan over the telephone on the morning of 6 January 2006.  He was already three days late with that oral submission.  Not only that, in the e-mail later that afternoon, Fan said that he intended to adopt the outline used in the previous year and withdrew the plan he mentioned that morning.  In other words, Fan had not yet made up his mind on the morning of 6 January 2006.  It was only until 13 February 2006 that the outline was submitted.  Fan was in repeated clear breaches of TG2(i).

148.  However, the time limits were very tight, ranging from four to twelve days.  The e-mails showed that Fan and other tutors were late in the submission of their course outlines.  Under cross-examination, PW3 and PW8 admitted that many tutors were late including PW4.  It appears that KG did not take a serious view about the late submissions.  It was not until Fan was in trouble with the advertisement in the 756^th issue of Yes!magazine that KG started to take issue about the delay.  But even then, no warning letter had been issued in respect of the breaches committed after the issue of the first warning letter.  In view of the atmosphere in which the delays occurred, KG's relaxed attitude towards such delays and that the course outlines were eventually published before enrolment, I think the consequence of the breaches were trivial or of no consequence at all.  

Inappropriate contents of lecture notes

149.  KG's complaint in respect of this alleged breach is for Fan's distribution of lecture notes which had not been registered and approved in breach of TG3(ii) and GN(i) and (ii) and which also contained  vulgar and abusive language.  KG's case is that in November 2005, they received complaints from their students that Fan's lecture notes issued in October 2005 contained highly inappropriate, vulgar and abusive language and discriminatory substances.  On 14 November 2005, PW1 and PW2 interviewed Fan.  PW2 delivered a warning letter dated 14 November 2005 to Fan.  That was the fourth warning letter.  In the letter, KG demanded Fan to stop distributing the offending lecture notes and to give a written explanation within three days.  They had a brief discussion in which Fan explained that he was only criticizing another tutor for copying his personal style.  Fan signed acknowledgement for the warning letter but raised no objection.  Neither did he give any written explanation as requested.

150.  Mr Lam's principal submission is that none of the provisions in the GN concerned the use of highly inappropriate, vulgar and abusive language or discriminatory substances.  With respect, though the GN was not that specific, GN(ii) clearly stated that the contents of the lecture notes must principally be educational.  If the lecture notes contained articles criticising other tutors and using inappropriate language, they were clearly in breach of the GN.

151.  There is no dispute that since November 2004 Fan had not submitted his lecture notes to C&M Department for registration.  His case is that he did not need to.  Thus, the lecture notes in question had not been registered and approved by KG and their distribution in class was in clear contravention of the TG.  The remaining question is whether the part of the lecture notes complained of contained inappropriate contents as alleged by KG.  That only goes to the seriousness of the breach.

152.  The lecture notes in question were distributed in October 2005 to students of Form 5 English Regular Course.  In an article titled「複製補習名師」(Duplicating A Famous Tutor), Fan criticised another tutor.  In the article, he used the following expressions:「脊西」(編按：潮州話 - 吃糞) and「笨實」(編按：愚笨 + 老實 = 笨實).  In another article titled「真不知[你們]的腦袋裝甚麼？」(Really Don't Know What Is Held In “Your” Minds), Fan wrote about his lectures.  He wrote:「… 但我已經唔太滿意！跟住個班 … 他媽的討厭呀！… 總有d人戊利又冇組織、有目的咁攻擊我架啦！… 話我學生多臭寸！」.  Under cross-examination, Fan disagreed with counsel that the expressions he used were abusive or obscene.  He said that those expressions were used in Chinese literary works such as《三國誌》(Romance of the Three Kingdoms) and 《水滸傳》(The Water Margin).  In particular, he said that the expression「他媽的」(God damn it) was used as teaching material by the Education Department or HKEAA.  But he did not produce the relevant materials in support of his evidence. 

153.  Mr Lam submits that the expressions complained of were taken from Chinese literatures, some of which were standard texts used by Hong Kong students.  With respect, I do not agree.  At least no evidence that the expressions were taken from the literary works quoted above has been produced.  I am aware of trendy slang or “MSN” language being used in some examination materials, but they were in no way similar or comparable to the dirty language used by Fan.  Fan's assertions are uncorroborated empty assertions.  Even assuming those expressions were used in the literary works Fan quoted or adopted by the Education Department or HKEAA as teaching or examination material, that does not necessarily mean those expressions were not inappropriate, to use the mildest description.  I lament at the deplorable fact that some trendy slang found their way into the teaching or public examination materials for Chinese language.  But that does not mean a few “trendy” officers of the Education Department or the HKEAA are to set our standard of common decency.  Much less can they take away the Court's power to find what that standard is.  Indeed I am also aware of the severe criticism in the educational field about the use of trendy slang in examination papers.

154.  Trendy slang, such as「脊西」(go eat shit),「他媽的」(God damn it),「戊利」(damn stupid) and「臭寸」(stinky cheeky or damn cheeky) are quite casually used to varying degrees, just as many of the well known abusive languages, particularly by the less privileged and less educated.  Such trendy slang are used by youngsters who are short of proper expressions to express their emotion.  Fortunately, those slang, though casually used, are not widely used.  They may be casually used in the sense that they are used often or very often by a section of the public, but they are not widely used in the sense that they are casually used by all or by the majority of the population.  Such slang are also used in movies.  But one must not lose sight of the circumstances in which they are used in the movies.  One may also find a few labourers exchanging abusive language loudly and repeatedly on the MTR which fouled the atmosphere of the entire carriage.  But the majority of the passengers do not use the same language.  This scenario just demonstrates the point.  That abusive language or trendy slang is casually used do not set the standard of common decency.  I find the above expressions complained of were dirty language which offended the common standard of decency.  Mr Pow SC might be pitching it too high in describing those expressions as vulgar, abusive or indecent.  The expressions are certainly not decent.  The appropriate description for those slang is “inappropriate”.  They are not used by decent members of the public.  In particular, teenagers should not be encouraged to use them.

155.  Fan wrote in the second article, 「得知其形而不知其實，抄得就抄，唔抄正笨實！(編按：愚笨 + 老實 = 愚笨)」.  The literary translation for the expression「笨實」is “stupid but honest”.  But that expression is known to carry an innuendo meaning of “stupid prick” which is both vulgar and abusive.  In the context in which the expression appeared, Fan could either mean the literary meaning or imply the innuendo meaning.  Even if he intended to convey the literary meaning, it was just as inappropriate to use in an article contained in lecture notes an expression which could lead their young readers to infer such a vulgar and abusive meaning.

156.  Mr Lam submits that the expressions were used in entertaining materials in the informal part of the lecture notes to stimulate students' interests on the subject.  He even submits that the use of contemporary and popular language helped tutors to communicate better with students and since the aim of KG was to help students in their examinations there was nothing more fitting if tutors could communicate at the level of the students.  Mr Lam has my sympathy for making such an absurd submission.  He is echoing Fan's evidence that some of his students were not interested in study but they liked his language which had an appeal to them.  Hence, those students would read his works and he was doing good to society.  Again, with respect, what subject was Fan trying to stimulate his students to learn?  Fan was a tutor in the English language and not contemporary trendy dirty Chinese slang! 

157.  The articles were written to criticise another tutor.  They were written in Chinese containing trendy Chinese slang which are inappropriate for teenagers.  Teenagers should not be exposed to such inappropriate language, let alone encouraged to use them.  Students reading them as part of the lecture notes would be misled into adopting such a low standard of decency which is inappropriate for their station in life.  The articles had the effect of promoting the use of such inappropriate language as they were presented to the students as part of the lecture notes from their respected tutor.  They were certainly not educational.  The articles were injurious to the reputation of other tutors and were incompatible with the use of lecture notes and the aim of KG as an educational institute.  They were not to be expected in teaching material of a prestigious educational institute.  Parents who pay many times the regular school fees to send their children to tutorial schools would not expect their children to be taught such inappropriate language.  Bearing in mind the purpose for which the lecture notes were distributed and the circumstances of the readers, I consider the language used inappropriate.  Fan was in breach of the TG and the GN(i) and (ii).  I consider the breach a serious one.

Lecture notes containing promotional materials of Chau Kan Choy

158.  This complaint is for Fan's distribution of lecture notes which had not been registered and approved in breach of TG3(ii) and the GN (i) and (ii) and which also contained promotional materials of another tutor, Chau Kan Choy (“Chau”) in breach of TG3(ii), 5.1, 5.2, 5.3(e), 5.3(f) and 5.4(c).  The incident occurred in November 2005 when Fan's lecture notes had not been submitted to C&M Department for registration.  Fan was therefore in clear breach of TG3(ii) and GN(i) and (ii).  The next question is whether he was also in breach of the TG5 in respect of Chau's promotional materials contained in the lecture notes.

159.  KG's case is that in October 2005, Fan applied to PW2 to teach Form 4 to Form 7 Chinese language courses in partnership with Chau.  The reason was because Chau's student intake was low and Fan wanted to assist Chau with his popularity.  At the time, there were other Chinese language tutors apart from Chau.  PW1 considered Fan's proposal would cause undesirable competition within KG and turned down his application.  After further negotiation, KG agreed to allow Fan to participate as a consultant in the preparation of lecture notes but not in teaching.  At a meeting on 4 November 2005 between PW1, PW2, Anthony Leung and Fan, it was agreed that if Fan wished to include his photograph in Chau's promotional material a rider, 「K Oten惟該科學術顧問並不會參與任教」, to the effect that Fan would only participate as consultant but not in a teaching capacity with KG's logo must be applied.

160.  However, in mid November 2005, KG discovered that Fan's lecture notes distributed to Form 4, Form 5 and Form 6 contained Chau's promotional material with Fan's photograph but without the rider and KG's logo.  Those lecture notes were distributed in clear breach of the agreement reached on 4 November 2005, the TG and GN.  On 15 November 2005, PW1 and PW2 interviewed Fan and demanded Fan to expunge the promotional material or to insert the rider on the promotional material on or before 18 November 2005 otherwise KG would not distribute the lecture notes.  PW2 also delivered a warning letter to Fan dated 15 November 2005 demanding Fan to comply with the above and to furnish a written explanation for his breach of the agreement reached on 4 November 2005 within three days.  That was the fifth warning letter.  Fan signed an acknowledgment for the warning letter.  Fan was unable to comply by 18 November 2005 and PW2 granted him an extension of time to 21 November 2005.  Fan did not furnish any written explanation.

161.  On 21 November 2005, PW2 was informed by the staff in the various branch schools that lecture notes containing the promotional material without the riders were still being distributed in the classes starting at 4:30 pm despite objection from the staff.  The staff from the Kowloon Bay centre managed to remove the promotional material from some of the lecture notes.  Hence, PW2 instructed the staff of the various branch schools to restrain the distribution of lecture notes containing the promotional material without the riders to the classes at or after 5:45 pm.  But in order not to upset the 4:30 pm classes, he instructed the staff not to retrieve the lecture notes which had already been distributed.  At about 5 pm, Fan arrived at the Kowloon Bay centre and created a scene at the reception area.  PW2 took Fan to a room to reason with him.  Fan said that the riders were on the way but could not be delivered before 5:45 pm and asked for further indulgence from KG.  In order not to disrupt the classes, PW2 agreed to extend the time for compliance to 7 pm.  Then at about 6 pm, the riders arrived.  KG's staff and Fan's assistant together affixed the riders.  PW2 discovered that the riders only stated「只擔任課程顧問 不參與教學」 but did not contain the exact words required.  As the riders were sufficient to convey the message intended, PW2 did not wish to take issue with Fan and allowed the lecture notes with the riders to be distributed.

162.  Fan's pleaded defence is that in November 2005 PW1 and PW2 approved his proposal to run Chinese language courses jointly with Chau.  After the promotional pamphlets were printed, KG resiled from that agreement.  As a result, Fan withdrew from the courses.  Thereafter, he had nothing to do with the organisation and operation of the courses including the distribution of promotional pamphlets.  To the best of his knowledge and belief, KG intended to continue to use the promotional pamphlets already printed but with the words「課程顧問」(course consultant) added beneath his name and photograph.  Then for reasons unknown to him, the words which were added became「K Oten惟該科學術顧問並不會參與任教」.

163.  His evidence at trial is that his personal friend, Chau, was teaching Chinese language in KG.  However, PW1 introduced a new Chinese language tutor and transferred a lot of Chau's students to the new tutor.  Chau sought his assistance and he agreed to assist with his popularity by placing his photograph in Chau's promotional material, assisting in his course planning and to post as his student in the video.  At first, PW1 and PW2 agreed with his proposal and he printed the promotional material depicting him among Chau's teaching team in Fan's lecture notes.  However, as other Chinese language tutors objected to his participation in teaching the Chinese course, PW1 withdrew her approval a week later.  He had a meeting with PW1 and PW2.  Then Fan compromised and agreed not to teach but to describe himself as「課程顧問」(course consultant) for Chau.  As for the lecture notes with the printed promotional materials which had already been printed, it was agreed that they might be distributed but future promotional material to be printed must include words「課程顧問」(course consultant) against his photograph.  However, a week or two later, when his assistant was distributing the lecture notes which had been printed earlier, KG's staff in the Kowloon Bay centre tore away the pages containing the promotional material from his lecture notes.  He considered it an insult and rushed to the Kowloon Bay centre to reason with the staff there.  He was told that PW2 authorised tearing up the promotional material.  He went to see PW2.  PW2 said he knew nothing about the incident but insisted that it was not enough to add the words「課程顧問」(course consultant) to the promotional material but a long sentence that「K Oten惟該科學術顧問並不會參與任教」.  He complained that the lecture notes would be damaged if the promotional material was removed.  PW2 said he would take time to consider and agreed as an interim measure that Fan might distribute the lecture notes containing the promotional material.  Then Fan left and went on with his lecture.  It was later resolved between PW8 and his assistant Ip to print some riders and to affix them on the lecture notes.

164.  Immediately, Fan's departure from his pleaded defence is apparent.  In his pleaded defence he was talking about promotional pamphlets and not promotional material inside his lecture notes.  He pleaded that since his withdrawal from the Chinese courses, he had nothing to do with the distribution of the promotional pamphlets, which now becomes the promotional material inside his lecture notes.  But according to his evidence, he had much to do with the lecture notes, including his bursting into temper and reasoning or arguing with PW2.  Fortunate for him, there was no dispute that in fact the promotional material was printed inside his lecture notes and there was an argument about the lecture notes in the Kowloon Bay centre.  But unfortunate for him, his evidence still conflicts with PW2's and PW8's.  Who do I believe?

165.  Fan's pleaded case demonstrates not only the lack of care but also lack of good faith in his conduct of the litigation.  He was prepared to conceal the truth and plead something else to mislead the Court.  He must have a striking memory about the incident in the Kowloon Bay centre because he seldom lost his temper.  He could have no mistake that KG was referring to the promotional material inside his lecture notes.  Yet, he pleaded a case about the promotional pamphlets, KG wanting to use the pamphlets by adding the words「K Oten惟該科學術顧問並不會參與任教」and he had nothing to do with the promotional pamphlets.  But as KG's evidence unfolded and it became apparent that his pleaded case could in no way stand, he disclosed more of the truth.  He had to reveal that it was not KG who intended to use the promotional pamphlets, but he who wished to use the lecture notes which contained the promotional material.  Bearing in mind that he opted for Plan C and undertook to print and deliver the lecture notes, KG would have no interest at all to enable him to use those lecture notes to save Fan's cost.  Rather, KG's interest was, if Fan were to use those lecture notes, the lecture notes must comply with the GN, i.e. the promotional material must be expunged.  Viewed in that light, PW2's and PW8's evidence is closer to the truth.

166.  Furthermore, Fan's evidence that PW2 allowed the lecture notes with the promotional material to be distributed and then PW8 and Ip subsequently resolved the dispute by ordering and affixing the rider on the lecture notes also betrayed him.  If the riders were only to be ordered on 21 November 2005, it must take some days before they could be printed and affixed on the lecture notes.  According to him, KG was taking a very firm line against the distribution of the promotional material, to the extent of tearing it from the lecture notes.  It would not be credible that PW2 would agree to the interim arrangement and allow the lecture notes with the promotional material to be distributed for a few more days.  What is more revealing is PW8's very spontaneous reply under cross-examination about her ordering the riders and agreement with Ip after the incident.  According to PW8, she was in Taiwan when her colleagues instantly reached her by long distance telephone call to report to her about the incident in the Kowloon Bay centre.  She said that her sole involvement was to introduce KG's printer to Fan and she had done that prior to the incident.  She had nothing to do with the ordering of the riders.  Her evidence corroborated perfectly with PW2's.  This is the second occasion when Fan's evidence hit upon an alibi cast in stone.  He is as careless in concocting his case as he was in pleading it.  I do not believe his evidence.  I accept PW2's and PW8's evidence.

167.  As I accept KG's evidence about the incident in the Kowloon Bay centre, there is no reason not to accept their evidence about what led to that incident.  Furthermore, if, as Fan said, PW1 transferred many of Chau's students to the new Chinese tutor introduced by PW1, there was no reason why PW1 and PW2 would have allowed Fan to join Chau to compete with their preferred tutor.  There is all the more reason to accept that they imposed restriction in the way the promotional material was to be used.  I accept PW1's, PW2's and PW8's evidence.  Accordingly, I find that Fan distributed his lecture notes in breach of the agreement reached on 4 November 2005, the TG and GN.

168.  Under the GN, tutors were not allowed to include promotional materials of other tutors in their lecture notes.  Fan wanted to lend his name to support Chau and to promote Chau in his own lecture notes.  On the facts, KG accommodated Fan's request subject to the restrictions imposed on the use of the promotional material for Chau in Fan's lecture notes.  Fan did not submit his lecture notes for registration.  And he deliberately violated that agreement by distributing his lecture notes containing promotional material for Chau with his name and photograph but without the rider.  When that was discovered, he was given further time to comply, but he did not and created a scene at the Kowloon Bay centre.  Whatever was the reason behind the KG's refusal to allow him to teach Chinese language courses and to lend his name and photograph to be used in Chau's promotional material, this breach was a deliberate one which has the effect of usurping KG's management function in maintaining the balance among their tutors.  I view this as a serious breach.

Obtaining personal data from students

169.  KG's cause of action under this head is based on TG3(v) which provided as follows:

 「學生資料

學生資料乃屬校方資產，任何導師及員工未經校方同意均不能私自盜取或向學生索取其個人資料，如有違者，本校保留一切法律追究之權利。」

(Translation:  

Students' Personal Data

Personal data of students are assets that belong to the school, tutors or staff shall not steal or solicit from students their personal data without the consent of the school, the school reserves all legal rights to pursue against such breach.)

170.  KG's case is that on 10 April 2006, KG's staff in the Kowloon Bay centre, Mong Kok, Shatin and Tsuen Wan branch schools discovered Fan's assistants collecting personal data from students during class.  The personal data included the student's name, telephone number, residential address and e-mail address.  Though KG's staff managed to retrieve the personal data collected from the Kowloon Bay centre and Tsuen Wan branch school, Fan's teaching assistants in Mong Kok and Shatin branch schools managed to take away the students' personal data.  On 12 April 2006, PW3 issued a warning letter to Fan by e-mail and reminded him that if students' personal data were required he should apply to KG for the personal data.  Fan acknowledged receipt by e-mail on 13 April 2006.  He did not dispute his assistants collected students' personal data but retorted by saying that collecting students' personal data had been a long accepted practice since his admission as a shareholder of the 4^th Plaintiff.  KG stepped up their surveillance on the activities of Fan's assistants.  Despite the warning letter, Fan's assistants continued to collect students' personal data from the various branch schools.  KG's staff were able to retrieve only some of the personal data from Fan's assistants.  They also seized blank personal data collection forms left behind in the classrooms indicating that Fan's assistants were still in the process of collecting personal data from the students.  In addition, KG also discovered that students' personal data were collected by way of Otenians application forms to join Fan's K Oten English Team.  Students were invited to provide their personal data in the Otenians application forms.

171.  Fan does not dispute the activities of his assistants.  In essence, his defence is that students' personal data were not confidential and were readily available to him whenever the need arose.  He gave various explanations at different times.

172.  Firstly, in his e-mail response on 13 April 2006 to PW3's warning letter, his defence is that as a shareholder he was entitled as a long practice to collect students' personal data and he did so to relieve the burden of KG because of the large number of students involved.  Fan was admitted as a shareholder of the 4^th Plaintiff only in May or June the year before.  Quite apart from the fact that such practice is disputed by KG, the fact that his activities were challenged within the same academic year when he was admitted as a shareholder speaks for itself.  Furthermore, he was only a 10% shareholder in the 4^th Plaintiff, that could not have entitled him to collect personal data of students of the other ten tutorial schools belonging to the other six Plaintiffs.  His alleged long standing practice is just incredible.  As for his allegation that he was relieving KG's burden in collecting the personal data, it is also incredible in view of the seriousness in which students' personal data were jealously guarded by KG under the TG and in actual practice.

173.  Secondly, in his solicitors' letter dated 26 April 2006 in reply to KG's letter accepting his repudiation, the explanation offered was that collection of personal data from students had been authorised by KG and had been repeatedly done for several years.  It is worthy to note that in just fourteen days, Fan abandoned his earlier claim of right as a shareholder of the 4^th Plaintiff to collect students' personal data.  The new explanation is inconsistent with his e-mail thirteen days ago that since his admission as a shareholder of the 4^th Plaintiff about ten months ago he was entitled to collect students' personal data as of right.  The second reason offered in that letter was that the purpose for collection of the personal data was to ensure those students who failed in the examination and who wished to repeat the same course could have a free enrolment.  This is also an invalid defence (see paragraph 178 below). 

174.  Thirdly, in his defence and counterclaim filed on 13 December 2006 eight months later, Fan offered a different explanation.  He pleaded in some details that he had to obtain the personal data in order to get in touch with his students to ascertain their examination grades so as to answer KG's query about his questioned statement in the 756^th issue of Yes! magazine that his students scored the most number of grades A, B and C in open examination.  This is a new explanation offered eight months after his solicitors' letter.  Putting that explanation at its highest, it only excused him for collecting personal data from his Form 6 students in order to obtain their examination result in the previous year but did not excuse him for collecting personal data from all students across the board.  But even then, he was not relying on any authority to collect the students' personal data whether as a shareholder or by reason of any established long practice.  This defence was totally inconsistent with his e-mail and his solicitors' letter.  Though this defence was deleted in his Re-Amended Defence and Counterclaim and Fan no longer pursued it, its existence at one stage of the litigation cast doubt on the veracity of his explanation offered in the amended defence. 

175.  Shortly before trial, Fan re-amended his defence almost three years after the incident.  He pleaded new defences. 

176.  Firstly, he pleaded that students' personal data were not confidential to tutors and were readily made available to them whenever the need arose.  In his witness statement, he said that since his joined KG, students' particulars were handed over to him for keeping records and for understanding the standard of the students to enable him to prepare teaching materials.  He relied on his letter dated 7 October 2003 to C&M Department.  Unfortunately, that letter precisely defeated his defence and supported KG's case.  It was a letter in which he applied to the C&M Department for personal particulars of the students for the purpose of preparing teaching material.  The request was formally approved by PW3.  That letter was consistent with KG's case that students' personal data had always been seriously guarded and would not be released to tutors save for special reasons and upon application to and approval by KG.

177.  Secondly, he pleaded that it was a usual practice since about 2004 that if an updated student list was required for contact to be made with students at short notice, tutors would collect personal data from students directly during class.  In his evidence, he identified for the first time that it was PW8 who had developed the practice of providing students' personal data to him.  That was categorically denied by PW8.  Fan produced two e-mails dated 2 and 11 March 2006 from PW8 in support of his evidence.  Those e-mails showed that Fan applied for the information in order to enable his assistants to contact the students to give them last minute “examination tips”.  Again, those e-mails showed that the telephone numbers of the students were released to him upon application and approval by C&M Department.  Those e-mails simply did not support Fan's case that there was a standing practice that he might collect personal data direct from the students, let alone indiscriminately from all students.

178.  He gave further examples of such need to contact students at short notice, such as providing free grammar books to students for having introducing new students, offering free repeat lessons, rescheduling courses for students who missed lessons and enquiring from students their examination result for the purpose of verifying his questioned statement that his students had been awarded the most number of grades A, B and C in open examination.  Put at the highest, these are incidents of his applying for students' personal data which were then provided upon KG's approval but not practices where student's personal data were provided as a matter of course.

179.  Thirdly, he pleaded that in after April 2006, he needed the students' personal data for creating access accounts for his Capture A Course students to an internet website and for contacting students to arrange for them to access the website in an orderly and regulated manner.  His assistants requested the branch schools to provide personal data of the students for the aforesaid purpose.  The staff asked his assistants to collect such data during lesson by themselves as the staff was unable to provide an updated list of students enrolled in the Capture A Course within a short time.  However, this allegation is flatly rebutted by the record of a telephone conversation between Ip and a staff of KG called Sam Lam.  Fan has no dispute about the authenticity of the recording and the correctness of the transcript.  According to the transcript, Sam Lam and Ip were discussing about staggered access to Fan's website by his students.  Over the telephone, they agreed that announcement would be made by KG's staff perhaps with the cooperation of Fan's assistants to the students in class requesting them to fill in certain forms containing their contact particulars and to deposit those forms with the school office, which would then be given to Ip.  But Sam Lam repeatedly reiterated during the conversation the need for Ip or Fan to seek approval from PW3 for release of the information.  The transcript demonstrated the partial truth which Fan gave in an attempt to mislead the Court.  It demonstrated the simple fact insisted by KG that students' personal data were to be collected by KG and would only be released to Fan upon his application to and subject to the approval of C&M Department. 

180.  Fourthly, Fan pleaded that in early April 2006, his assistants placed proforma in the classrooms for students interested in enrolling in Capture A Courses to provide their personal data.  However, on or about 10 April 2006, when his assistants collected the proforma, they were stopped by KG's staff.  Thereupon, he protested to PW3 over the telephone and was then allowed to continue with the collection on condition that a copy of the personal data collected would be given to KG.  Hence, he argues that the students' personal data were collected with the full knowledge and consent of KG.  However, the forms seized by KG's staff were not merely catered for Capture A Courses which were related to Form 5 or Form 7 students only, but were Otenian application forms to join K Oten English Team.  The Otenian application forms were distributed indiscriminately.  It should be recalled that it was Fan's evidence that the proforma were issued by his assistants to diligent students to whom he would issue Otenian warrants which would give them priority in enrolment to his live classes.  The seizure of the Otenian application forms discredited Fan and cast doubt on his defence.  The Otenian application forms showed that Fan was seeking to gather a group of loyal supporters and collect their personal data for future use.

181.  Quite apart from the fact that his pleaded defences were also rebutted, most of the allegations were new allegations raised almost three years after the incident.  The allegations were simple and, if true, could offer very valid explanations.  For example, back in April 2006, he could have easily given particulars of the staff who told him to collect the students' personal data.  This allegation was raised almost three years after the event.  If indeed that was the case, why didn't he offer that explanation in his e-mail dated 13 April 2006?  Instead, he relied on his status as a shareholder of the 4^th Plaintiff.  Also, in this defence, he impliedly accepted that he had to obtain permission before he may collect students' personal data.  He gave different explanations at different times which led ultimately to his Re-Amended Defence shortly before trial.  His conduct showed that he had really no defence and he was concocting his defence as the litigation progressed.  His latest defence was concocted from partial truth which he hoped could constitute a valid defence.

182.  I accept KG's evidence and reject Fan's evidence.  TG3(v) made it amply clear that students' personal data were private property of KG.  The tutorial school business is a very competitive business.  As explained by PW1, students tend to develop a close bond with their tutors.  They tend to follow their tutors wherever the tutors go.  The goodwill created by the name and location of the tutorial school is nothing to compare with the personal bond between the student and the tutor.  Even if a tutor leaves the school, the school would not wish to see him armed with contact details of students so that he could entice an exodus.  Therefore, students' personal data were jealously guarded.  The various incidents in April 2006 precisely demonstrated the seriousness in which KG from senior management down to front line level understood the confidential nature of students' personal data.  It lies ill in Fan's mouth to argue that there was a usual practice for the students' personal data to be provided casually by KG's front line staff or to be collected at will by the tutors. 

183.  The evidence is clear that starting from early April 2006, Fan was collecting personal data indiscriminately from students without KG's consent.  That was discovered by KG on 10 April 2006.  Despite PW3's oral warning on 11 April 2006 and followed by the warning letter on 12 April 2006, Fan's attitude was that he was entitled to collect students' personal data by right of his status as a shareholder and what he claimed to be a long established practice.  He was recalcitrant.  He continued collecting students' personal data despite warning.  Some of the data collection forms seized by KG's staff consisted of the Otenians application forms which showed that Fan was indiscriminately collecting students' personal data rather than for specific legitimate purposes of communication at short notice, etc.  The inference is that he was gathering a group of students and forging some alliance with them.  He was collecting personal data from those students so as to put himself in a position to entice them should he move to another tutorial school.  This demonstrated the seriousness of the consequence which this breach could have.  The collection of some of the students' personal data after 10 April 2006 was with the permission of PW3 for specific approved purposes, but not all the collections.  The various excuses and defences offered by Fan are just lame excuses.  The breaches were not technical breaches in the sense that there was a legitimate purpose to have access.  They were both wilful and despite protest from PW3.  He was in clear breach of TG3(v).  The breaches were viewed seriously by KG.  These were serious breaches.

On-line teaching

184.  KG's cause of action is based on clause 4 of the 2003 Agreement in which Fan undertook to teach exclusively in the school premises of KG during the subsistence of the agreement.  There was a similar provision under the 2002 Agreement.  Thus, even on Fan's case, he would be bound by the same undertaking under the oral agreement.  There is also no dispute that in cooperation with Mind Works Limited Fan gave on-line lectures.  Thus, the only issue is whether the on-line teaching was ever approved by KG.

185.  KG's case is that in March 2006, a Miss Li (“Li”) representing Mind Works Limited which was a subsidiary of Tom.com Limited telephoned PW9.  Li explained that Mind Works Limited wished to launch a programme on their company's website, www.my100fun.com, teaching students examination technique.  She expressed interest to cooperate with KG providing mock examination papers for the English language subject for her company to upload on the company's website.  She also asked for a list of KG's English language tutors.  PW9 reported to PW3 and was instructed to seek further information from Li.  Li appeared to be ignorant about the subject matter but intimated that her company was only interested in Fan.  After seeking instruction from PW3, PW9 informed Ip about the invitation from Mind Works Limited and asked Ip to contact Li to provide her with some technical information.  After a couple of days, PW9 learned that neither Ip nor Fan had contacted Li.  She reported to PW3.  PW3 then telephoned Fan and asked if he would write mock examination papers for Mind Works Limited.  Fan agreed to contact Li and provide her with some technical information and to leave all other matters to KG to follow up.  After about a week, neither Fan nor Ip reported back.  PW9 then telephoned Li to ask about the progress.  Li became very evasive and said she would revert to PW9, but she never did.

186.  At about the same time, an assistant of another tutor, Kevin Ko, informed PW3 that Kevin Ko had received an invitation from a person called Vivian to write mock examination paper for her website.  PW3 then telephoned Vivian and discovered that Vivian and Li were the same person.  It would be convenient to note here that according to Fan's first supplemental witness statement, Vivian Li was his marketing consultant who also acted on behalf of Mind Works Limited.  If that was true, Li would not have taken such a devious path to get in touch with Fan through PW9 whose credibility I have no doubt.  Li told PW3 that she had reached agreement with Fan to write mock examination paper for the English language subject and to share in the profit equally.  Li also said that the mock examination paper would be on sale in Circle K convenient store.  PW3 then reported to PW1.

187.  In early April 2006, KG bought a copy of the mock examination paper which indicated that Fan was the author of the paper and had delivered lectures relating to the paper on the website of www.my100fun.com on 3 April 2006.  On the instruction of PW1, PW3 telephoned Fan and asked him to stop teaching on the website as he had already breached clause 4 of the 2003 Agreement.  Fan replied that he would contact PW1 direct, but he did not do so.  On the following day, PW8 telephoned Fan on the instruction of PW1, but Fan declined to discuss the matter with PW1.

188.   Later that month, PW3 and her colleague Mr Law visited the office of Mind Works Limited to meet with Li and the general manager of Mind Works Limited (DW5).  PW3 intimated to Li and DW5 that KG's tutors had signed exclusive agreements which prohibited them from teaching outside the school premises of KG.  But DW5 replied that he had no knowledge of such agreements and said that Mind Works Limited had entered into a contract with Fan in which Mind Works Limited undertook not to allow other English language tutors to write mock examination paper for the website www.my100fun.com.  DW5 indicated interest to cooperate with KG and said he would revert to KG with a proposal but there was no follow through.

189.  In mid April 2006, KG discovered another set of mock examination paper in the English language subject on sale in Circle K convenient store.  The mock examination paper indicated that it was written by Fan and that Fan would conduct on-line teaching at 9 pm on 22 April 2006.  On that night, PW3 found Fan teaching on the website of www.my100fun.com. 

190.  Fan's defence is that PW3 had given him permission to conduct on-line teaching.  Fan also called DW5 to give evidence on his behalf. 

191.  DW5 has now left Mind Works Limited.  He was its general manager in 2006.  His evidence is that he knew Hui in the university through whom he came to know Fan, Ken Chan and Chau.  He recruited them to participate in on-line teaching.  During his discussion with Fan, Fan told him that there would be no problem for Fan to write mock examination papers but Fan would need approval to teach on the website.  He confirmed that he had a meeting with PW3 in April 2006 and the atmosphere was good but PW3 did not revert to him about cooperation.  He then enquired from Fan and the other tutors if they had obtained approval from KG to conduct teaching on the website and they all replied in the affirmative.  In essence, there were only two points in his evidence.  First, he said that he came to know Fan through Hui and not through KG or through Li or PW9.  That is inconsistent with PW3's and PW9's evidence as well as Fan's own evidence that it was PW3 and PW9 who referred Fan to Mind Works Limited.  On this issue, I give DW5 the benefit of doubt that he and Li might have started contacting respectively Fan and KG at about the same time in parallel.  Anyway, this issue is of no significance.  Second, he said that Fan had informed him that Fan had obtained approval from KG to write the mock examination papers and to conduct on-line teaching.  Even if this was true, his evidence is of no assistance to Fan as it never was DW5's evidence that KG told him that they had given approval to Fan to conduct on-line teaching.  Though DW5 had left Mind Works Limited, I do not consider DW5 a completely honest witness.  He was obviously evasive when cross-examined about the profit sharing arrangement between Fan and Mind Works Limited.  He first said it was a commercial question, then he said he could not even recall if there was any intention of profit sharing and lastly he said there was no profit in the end.  He was certainly a very guarded witness.  I do not believe in the entirety of his evidence.  Where DW5's evidence conflicts with PW3's and PW9's, I accept PW3's and PW9's and reject his.

192.  Fan's pleaded defence as early as 13 December 2006 was that he had permission to conduct on-line teaching from PW3.  However, that was not disclosed in his solicitors' letter dated 26 April 2006 in response to KG's allegation of repudiation.  His solicitors only wrote that PW9 referred Fan to Mind Works Limited about uploading teaching materials.  The defence that he had been given permission by PW3 only came up eight months later in the defence and counterclaim.  In his witness statement filed on 28 November 2007, he only mentioned about PW3 and PW9 referring him to Mind Works Limited for uploading teaching materials and notes to the website.  Again, there was no mention about permission from PW3.  It was only in his first supplemental witness statement dated 9 January 2009 that he came up with a rather strained story.  Before going into his evidence, one wonders why did it take eight months for Fan to come up with a defence that PW3 had given him permission and what makes it so difficult for this intelligent young man to take almost three years to perfect that story?  He cannot put the blame on his solicitors this time for not properly writing the letter dated 26 April 2006 or for not properly drafting his first witness statement dated 28 November 2007. 

193.  Turning to his evidence, Fan said that he somehow came to know DW5, but he was not sure whether it was DW5 or PW9 who approached him about the project with Mind Works Limited.  He expressed to DW5 his concern about his appearing on the website.  Then, according to him, DW5 said he would seek the relevant approval from KG for Fan.  But this is not what DW5 said in his evidence.  DW5's evidence was that he would only deal with the tutors and not with KG.  That makes Fan's evidence suspect.  Then what is more interesting is that at that stage, Fan introduced Vivian Li.  He said that Li was his marketing consultant who also acted on behalf of Mind Works Limited.  He also said that Li told him that she had a meeting with KG during which KG agreed to consider and give the relevant approval about on-line teaching within a few days.  There was no such evidence from Li or PW3 or PW9.  According to Fan's evidence, after a few days, he still had received no news from KG.  He made enquiry with Li and Li told him that KG had not responded yet.  Then he telephoned PW9 and PW9 told him that PW3 had given her approval.  His account is such that makes it unnecessary for him to call Li to give evidence.  But everything is hearsay.  He even made the allegation that it was PW9, who had since left KG, who relayed PW3's approval to him.

194.  PW3 and PW9 categorically denied about having given Fan permission to conduct on-line teaching.  Even according to Fan's own case, there was only one meeting between KG and Mind Works Limited and Li was also present at that meeting.  DW5, who was Fan's only other witness present at that meeting, mentioned nothing about KG's promise to consider giving Fan approval to conduct on-line teaching.  This cast real serious doubt about the veracity of Fan's evidence. 

195.  During cross-examination, Mr Lam suggested to KG's witnesses that KG was targeting Fan because other tutors who also conducted on-line teaching on the website www.my100fun.com, like Ken Chan, Hui, Herman Yeung and Chau were not punished.  Obviously, those tutors steered clear of trouble.  Ken Chan did not appear on the website.  A cartoon figure was used instead.  PW3 was unable to confirm if the voice delivering the lecture was that of Ken Chan.  Likewise, Hui's and Herman Yeung's faces did not appear on the website.  But Fan ignored the warning from PW3 and refused to answer the telephone calls from PW9 made on behalf of PW1.  In any event, whether Fan was being targeted is besides the point.

196.  I find PW1, PW3 and PW9 credible.  PW3 denied granting permission to Fan to conduct on-line teaching.  Her evidence is corroborated by PW9's.  I have no doubt she was telling the truth.  PW9, in particular, had left the employment of KG.  She was called in the last minute as a result of Fan's witness statement filed a few months before the trial.  She was straightforward and not shaken on cross-examination.  She gave detailed account of the events she was involved.  Most of her evidence is not seriously disputed, except for the short point whether she informed Fan over the telephone that PW3 had granted Fan permission to conduct on-line teaching.  She said “no”.  I have no doubt she was telling the truth.  I reject Fan's evidence.  Even on his own evidence, he knew he might not conduct on-line teaching without approval from KG.  He declined responding to PW1, PW3 and PW9 and went ahead with on-line teaching for Mind Works Limited despite PW3's warning.  I find that Fan was in deliberate breach of clause 4 of the 2003 Agreement.

197.  Mr Lam argues that the term prohibiting teaching outside the school premises of KG was not strictly enforced as no action had been taken against the other tutors who were also in breach.  I do not agree.  There was clear evidence that those tutors heeded the warning of KG.  They promised not to show their images on the website and they did not.  Evidence, on the contrary, showed that KG had been accommodating and overlooked Fan's breach on 3 April 2006.  Yet, Fan chose to ignore the telephone calls from PW9, deliberately taught on the website with full knowledge that he was in breach of a term of the 2003 Agreement.  That was a serious breach and was deliberately committed.

Summary of facts

198.  Hereunder is a summary of facts relating to the various breaches leading to the termination of Fan's engagement with KG.

199.  Fan and Hui joined KG in mid 2002 as tutors.  Fan entered into the 2002 Agreement for a term of three years expiring on 30 June 2005. 

200.  In July 2003, they re-negotiated with KG for better terms and entered into new contracts.  On 7 July 2003, Fan signed the 2003 Agreement. 

201.  As a result of the resources KG put into their cooperation and the effort of Fan, Fan's popularity grew rapidly and he commanded a very large number of students.  His student population accounted for one-third of KG's total student intake by November 2005 and increased to 45% by April 2006 when the 2003 Agreement was terminated.

202.  After his status was elevated and the number of students increased, Fan began to depart from the TG and GN.  Starting from November 2004, he did not submit sample lecture notes to C&M Department for registration and approval.  C&M Department did not make a big issue out of that breach until May 2005.  KG did not take a very serious view of those continuing breaches at the early stage.  Those breaches had no serious consequences.

203.  On 24 March 2005, Fan and Hui made a twelve-point demand on KG.  They demanded refund of the shortfall in their income share based on discounted course fees which they had agreed, higher income share ratio, more courses, higher student quota, more prominent front row positioning in staff photograph, shareholding in KG and staff announcement confirming that they were KG's front line tutors.  PW1 agreed to some of their demands immediately and left the other demands to be discussed.  Eventually, towards the end of May or early June 2005, KG substantially acceded to their demands, including allotting them 10% of the shares in the 4^th Plaintiff and increasing their income share ratio to 70% in respect of income from the 4^th Plaintiff and 60% in respect of all the other Plaintiffs.

204.  While the above negotiations were going on, KG received a written complaint from the HKEAA on 6 May 2005for Fan's publication of the HKEAA's marking scheme.  PW2 and Anthony Leung interviewed Fan and gave him a verbal warning.  Fan undertook not to distribute the marking scheme.  The complaint was settled without any written warning.  Presumably, KG did not take a serious view about the matter.  The breach was trivial and had no consequence. 

205.  Fan's popularity and the number of his students continued to grow. He also launched very aggressive marketing by way of advertisement.  There was a great demand for his live classes.  He introduced the Otenian warrant system which caused some confusion in June and August 2005.  Probably, as Fan was drawing in many students and bringing good business, KG was willing to live with this breach.  No written warning letter was issued.  The two breaches were trivial and had no consequence.

206.  From July 2005 through to March 2006, Fan was late in submitting course outlines.  C&M Department was able to make good the delay.  In general, most tutors were late with their submission and KG never treated the breaches seriously.  Again, presumably as Fan was bringing in good business, KG was willing to live with this breach, until October 2005 when the breach was made a formal complaint in the warning letter dated 12 October 2005.

207.  In September 2005, the Education and Manpower Bureau complained to KG about Fan's questioned statement in the 756^th issue of Yes! magazine that his students obtained the most number of grades A, B and C in the open examinations.  KG discovered that Fan had placed the advertisement without obtaining prior approval.  PW1 and PW2 interviewed Fan and requested for a written explanation.  Fan admitted that he had neglected applying for permission to place the advertisement but insisted that he had instructed an agent to carry out a survey and had confirmation from his agent that the questioned statement was true.  They gave Fan two options, either to withdraw the advertisement or to provide proof to substantiate the questioned statement.  Despite repeated demands, Fan failed to provide proof to substantiate his questioned statement.  Not only that, Fan committed further breaches by placing advertisements in further issues of Yes! magazine without prior approval, albeit without the questioned statement.  On 12 October 2005, PW1, PW2 and another staff member interviewed Fan.  PW2 gave the warning letter to Fan setting out the last two breaches and the earlier four breaches (see paragraph 120 above).  Save for the advertisement containing the questioned statement, all the other breaches were just technical breaches because PW1 would have approved the advertisements had applications been made.  All those breaches were trivial and had no consequence.

208.  By November 2005, Fan's student population increased to one-third of KG's total student intake in the English language subject.  He was only second to PW4's team.  He attacked another English tutor for copying his style of teaching.  He wrote two articles in his teaching notes in October 2005 in which inappropriate trendy slang were used.  In addition, those lecture notes were distributed without having first been registered by C&M Department in persistent breach of the GN for which he had been warned in the first warning letter.  This was a serious breach, but had little consequence to KG. 

209.  He also committed further breach by including Chau's promotional material in his lecture notes in breach of the GN and the agreement with PW1 reached on 4 November 2005.  This was a serious breach, but had little consequence to KG.

210.  On 3 April 2006, in breach of the 2003 Agreement, Fan undertook teaching on the website, www.my100fun.com, without approval.  He ignored the warning given to him by PW3 and resisted PW1's attempt to contact him about the unauthorized on-line teaching.  This was a serious breach of the 2003 Agreement, viewed in isolation, but the consequence was not really serious.

211.  At the same time, he started collecting personal data from students indiscriminately in breach of the TG and GN.  He continued to do so despite warning from PW3.  These were repeated, deliberate and persistent breaches despite warning.  These are serious breaches, viewed together, but did not have serious consequence.

212.  Then, in further and repeated breach of the 2003 Agreement, Fan conducted a second on-line teaching on the website on 22 April 2006.  This breach, viewed in isolation, was a serious one, though not its consequence.  Eventually, KG accepted Fan's breach as repudiation of the 2003 Agreement.

discussion

A pleading point

213.  This is an action for wrongful repudiation of contract.  KG's case is based on three limbs: (1) the triggering breaches, namely the students' personal data breach and on-line teaching breach, were breaches of condition of the 2003 Agreement; (2) the triggering breaches, viewed against a history of serious and persistent breaches despite repeated warnings, constituted a repudiatory breach; and (3) the breaches, taken together, evinced an intention on the part of Fan that he would no longer be bound by the terms of the 2003 Agreement.  KG's primary case is based on breach of condition of the 2003 Agreement.  Once, either of those triggering breaches is established as a breach of condition, KG is entitled to repudiate the 2003 Agreement. 

214.  Mr Lam raises a pleading point.  He argues that KG have never pleaded the prohibition against collecting students' personal data and on-line teaching were conditions and it is not up to KG to rely on breach of condition as an additional basis for repudiation.  He submits that KG is now seeking to shift their case.  I respectfully disagree.  KG's pleaded case is wrongful repudiation of the 2003 Agreement.  Under Order 18 rule 7 of the Rules of the High Court, a party has to plead material facts.  Points of law may be pleaded.  But Order 18 rule 11 permits a party to raise points of law which has not been pleaded.  In my view all the breaches have been fairly pleaded by KG.  Mr Lam's argument has no merit at all.

Legal principles relating to conditions of contract

215.  Whether a term of a contract is an essential term, i.e. a condition, principally depends on the intention of the parties making the contract.  That intention may be expressed or may arise by necessary implication.  But this intention is subject to legislation: see Suisse Atlantique Societe d'Armenent Maritime AS v NV Notterdamsche Kolen Centrale, [1967] AC 361 at 422.  How that intention is to be ascertained is a matter of construction of contract. 

216.  The general principle in construction of a contract, as laid down by Lord Hofmann in Investor's Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 913 and in Jumbo King Ltd v Faithful Properties Ltd & Ors [1999] 4 HKC 707, is to ascertain the meaning which the agreement would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  This involves having regard not merely to the individual words used but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.

217.  Specifically, in ascertaining whether a contractual term is a condition, the following dicta from the High Court of Australia in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 430 is helpful:

“Whether a term of a contract is essential or not is a question of construction which is to be answered with due regard to the general nature of the contract considered as a whole and to its particular terms.  See Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd,where Jordan CJ said:

 “The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v Booth; Bettini v Gye; Bentsen v Taylor, Sons & Co [No 2]; Fullers' Theatre Ltd v Musgrove; Bowes v Chaleyer; Clifton v Coffey.  If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight.”

  This statement of the law, which was approved in Associated Newspapers Ltd v Bancks, emphasizes that the quality of essentiality depends for its existence on a judgment which is made of the general nature of the contract and its particular provisions, a judgment which takes close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances.”

218.  Although this is a decision from the High Court of Australia twenty years before Investor's Compensation Scheme Ltd v West Bromwich Building Society, the legal principle it adopted is consistent with the principle stated by Lord Hofmann in Investor's Compensation Scheme Ltd.  To determine whether a contractual term was intended by the parties to be a condition, the court has to look at all the surrounding circumstances when the contract was made, including the importance which the parties attached to the particular term, the general nature of the contract, the object which the contract was intended to achieve and decide whether the particular term conveys to a reasonable reader the impression that the parties intended it to be essential.  I shall adopt the above test to determine whether the triggering breaches were breaches of condition.

On-line teaching breach

219.  The on-line teaching breaches are breaches of an express term of the 2003 Agreement.  That agreement was the only written contractual document signed by the parties.  It was a very concise agreement consisting of one page.  Apart from identifying the parties, there were just four clauses.  Clause 1 provided that the term of the agreement was for a period of five years commencing on 1 July 2003 until 30 June 2008.  Clause 2 provided that the notice period for termination of the agreement was two years and premature termination otherwise than by giving proper notice shall be treated as repudiation.  Clause 3 provided that in case of repudiation, Fan may not for a period of one year after such repudiation teach in any other tutorial schools by whatever means, including live classes and video classes.  Clause 4 provided that during the currency of the agreement, Fan shall provide tutorial services for the scheduled courses and to perform the TG.  Fan also undertook he shall only teach exclusively within the school premises of KG.

220.  There was only one clause providing for Fan's obligation under the agreement, which was clause 4.  The parties saw fit to include in that clause Fan's undertaking to conduct teaching exclusively in the premises of KG.  By inference, the parties must have considered that undertaking an important term, otherwise it would not have found its way into this brief and only written contract document.  Prima facie, a term in the agreement which makes the agreement an exclusive agreement must be an important term, otherwise there was no need to make the agreement exclusive.

221.  This undertaking is of particular importance for the business of tutorial schools for the simple reason that students are attached to the tutors of their choice.  Students join a particular tutorial school because of the tutor rather than the name or goodwill of the tutorial school or its location.  The success of a tutorial school is dependent on its ability to maintain a team of popular tutors.  KG must have intended that undertaking to be an important term.  Being a star tutor in such a business, Fan must have realised the importance KG attached to his undertaking and agreed to make it an important term of the 2003 Agreement.

222.  By clause 4, Fan agreed to give KG a monopoly over his services.  Without this undertaking, Fan could teach in other tutorial schools or even teach in a competing business established by himself.  The importance of this undertaking to KG is also reflected in clause 3 which expressly preserved this monopoly for one year in case of prematured termination of the agreement. 

223.  Mr Lam submits that this term was not a condition and its breach was not a fundamental breach because KG did not take action against other tutors such as Ken Chan and Hui who also conducted on-line teaching at the same time as Fan.  He argues that KG always encouraged tutors to draft mock examination papers and answers for various institutions and in the newspapers.  Except for the fact that the incident at issue was not arranged by KG, there was no difference between those approved incidents and the incident at issue.  He argues that the only loss suffered by KG was the loss of a chance of promotion or publicity.

224.  This argument is logically flawed.  If according to the intention of the parties the term is a condition, it is a condition.  The innocent party is entitled to accept any breach of a condition, however slight, as repudiation and consider himself discharged from further performance.  It may well be the case that KG suffered no actual loss except perhaps the loss of a chance of promotion or publicity which it otherwise would have taken advantage of.  Be that as it may, under the terms of the 2003 Agreement, KG had the exclusive service of Fan.  They were entitled to hold Fan to his promise.  They were entitled not to permit Fan to conduct on-line teaching or to permit him to do so and take advantage of the opportunity to promote KG's image.  The loss of this opportunity might have little or no impact to KG, but it is not open to the party in breach of a condition of the contract to argue that the breach did not go to the root of the contract as to discharge the innocent party from further performance of the contract.

225.  As for KG's failure to take action against Ken Chan and Hui, the evidence is that KG had no prior knowledge of their on-line teaching beforehand and was not able to collect any evidence if they had conducted such on-line teaching.  Furthermore, in response to PW3's enquiry, Ken Chan promised that his image would not appear in the on-line teaching.  Indeed his and Hui's image did not appear in the subsequent on-line teaching.  KG could not be sure if the audio teaching was conducted by Ken Chan or Hui.  In any event, whether to take any action against a defaulting party is the sole prerogative of the innocent party.  Even if KG chose to waive their rights against the other tutors but not Fan, that is no basis to interpret the term breached as not being a condition of the 2003 Agreement when it was obviously an essential term of that agreement.

226.  Depending on the nature and extent of the breach, breach of that term could have serious consequences.  As I have emphasized time and again and which is not in dispute, students of a tutorial school are very much attached to the tutors.  Students follow the tutors wherever the tutors teach.  Hence, success of a tutorial school depends on the school's ability to retain a group of popular tutors.  If a tutor teaches in two competing tutorial schools, the business of one school will be adversely affected by the other.  Students would have one more choice of school.  Hence, it is important for a tutorial school to enter into exclusive agreement with its popular tutors.  Thus, if in breach of the 2003 Agreement Fan taught in another competing tutorial school, KG's students might leave for that other competing school for various reasons.  They may be attracted by the location of the competing school, the course fee charged, the other courses which that school had to offer and the other tutors of the competing school.  They may even be affected by their friends' preference for the competing school.  In short, KG would lose their edge if Fan was free to teach in another competing tutorial school.  KG might loose a lot of students and be deprived substantially of what they were expected to obtain as a consideration for the agreement.  Though this was not what had happened as a result of Fan's breach, the risk was there.  That risk was precisely what KG had wanted to prevent by securing Fan's undertaking and what Fan had assured KG would not occur by reason of his undertaking.  Both parties must have viewed the undertaking seriously and considered it an essential term.  They would not have entered into the 2003 Agreement without that undertaking.  Whether a term of a contract is an essential term is not to be determined by the actual consequence of the breach, but by the potential consequence which the parties in the particular circumstances of the case had in mind at the time they entered into the contract.  Viewed in the light of the nature of the tutorial school business, it is beyond argument that the parties must have considered Fan's undertaking to teach exclusively in the premises of KG was an essential term of the 2003 Agreement.  Applying the above principle of construction, I am satisfied that Fan's undertaking was a condition of the 2003 Agreement.

227.  On the facts, Fan only taught on the website on examination technique and in relation to his mock examination papers.  That may be part of or supplementary to what he was teaching in KG.  It was unlikely that students who studied package courses in KG would give up those courses merely because on-line teaching on examination technique was available.  After all, the on-line teaching was only conducted at the end of the academic year.  It would not have the effect of taking away students who were studying in KG.  The impact on KG was minimal.  Be that as it may, KG was entitled to accept the breach as Fan's repudiation of the 2003 Agreement.

Students' personal data breach

228.  The term prohibiting collection of students' personal data was contained in TG3(v) and not in the body of the 2003 Agreement.  It provided that students' personal data were assets belonging to the tutorial school, tutors may not solicit them from students without the consent of KG and KG reserved all legal rights to pursue against the tutors for such breach.  Mr Pow SC emphasises the significance of the stipulation labelling students' personal data as assets belonging to the tutorial school and the threat of legal action for appropriating students' personal data in breach of this prohibition.  I think those provisions amply demonstrated the importance KG attached to students' personal data and the irresistible inference is that the prohibition was intended to be a condition of the 2003 Agreement.

229.  The seriousness and concern which KG attached to students' personal data is readily understandable.  Students in a tutorial school are attached to the particular tutors rather than the school.  Competition among tutorial schools was very keen.  Unlike conventional schools, a tutorial school is confronted with real prospects of students' migration as a result of movement of the tutors.  To minimise the possible fostering of relationship between students and tutors, it must be forefront in the mind of KG to protect their legitimate interest by avoiding or even preventing direct contacts between students and tutors except in the ordinary course of teaching.  KG must have intended this provision to be a condition of the 2003 Agreement and that must be understood by Fan to be the case.

230.  Mr Lam argues that prohibition against collection of students' personal data was never an absolute one and the data had been partially released to Fan for legitimate purpose related to the running of classes.  In my view the fact that student's personal data had been released upon proper application for legitimate purposes is no derogation of KG's right to protect all the students' personal data.  The need to apply and to show legitimate purpose of the access precisely demonstrated the importance KG attached to this term contained in the TG.

231.  That said, I have some different thoughts about the importance of students' personal data to a tutorial school.  Hong Kong is a small place with very effective media coverage.  News travel fast, particularly with the internet.  As students have a tight bond with their tutor, a tutor can easily entice students from the tutorial school by some announcement in class or advertisement in the newspapers.  The prohibition against the tutor is no match against the student-tutor bond.  But be that as it may, this does not derogate the parties' intention to make the prohibition a term of their agreement.

232.  The seriousness with which students' personal data were jealously guarded show that students' personal data touched the nerves of KG or PW1.  In KG's mind, students' personal data could enable Fan to have contact with students and entice them to follow him to another tutorial school.  It was not known what Fan would have done with the students' personal data, but the potential of damage to KG was there.  Being a star tutor in the business, Fan must have realised KG's concern.

233.  Having addressed my mind to the principle of construction stated above, the circumstances specific to the operation of tutorial schools, the particular provisions in the TG and the possible consequence such breach could have, I have no doubt KG intended this particular term to be a condition and was understood as such by Fan.  I am satisfied that the prohibition against collection of students' personal data under the TG was a condition of the 2003 Agreement and Fan was in breach of condition of that agreement.

234.  Accordingly, I find that both triggering breaches were breaches of conditions of the 2003 Agreement.  KG was therefore entitled to accept Fan's breach as repudiation.  The above findings are sufficient to dispose of the question of liability.  I shall, for completeness sake, proceed to consider the parties' position, if the triggering breaches were not breaches of condition.

Fundamental breach - the cumulative effect of all breaches taken together

235.  Mr Pow SC does not contend that the non-triggering breaches were breaches of condition or repudiatory breaches.  As already analysed above, most of the non-triggering breaches were trivial breaches which had been commonly committed by various other tutors and which had all along been accommodated by KG.  The breaches were all breaches of obligations under the TG or GN mainly for failing to obtain prior approval before placing advertisements or failing to register the lecture notes before printing and distributing them in class.  Some breaches were just technical breaches but others were aggravated by reason of the circumstances under which the breaches occurred.  However, the consequences of the breaches were minor.  Mr Pow SC's contention is that the triggering breaches when viewed together with the history of previous serious, persistent and continuous breaches despite repeated warning amounted to a repudiatory breach which has the effect of depriving KG of substantially the whole of the benefit under the 2003 Agreement.

236.  Commencing from November 2004, Fan had been in breach for failing to submit sample lecture notes for registration which included a process of approval.  Those breaches had been continuing up to the date of termination of the 2003 Agreement.  Except for three instances which constituted separate breaches, those breaches were mostly technical, without serious consequences and had hitherto been tolerated by KG. 

237.  Then on 6 May 2005, KG received a written complaint from the HKEAA for Fan's publication of the HKEAA's marking scheme.  PW2 and Anthony Leung interviewed Fan and gave him a verbal warning.  Fan undertook not to distribute the marking scheme.  The complaint was settled without any written warning.  Presumably, KG did not take a serious view about the matter. 

238.  In June and August 2005, Fan introduced the Otenian warrant system which caused some confusion.  Probably, as Fan was drawing in many students and bringing good business, KG was willing to live with this breach.  No written warning letter was issued.  There was nothing to suggest KG suffered any real damage except for some inconvenience.

239.  From July 2005 through to March 2006, Fan was late in submitting course outlines.  C&M Department was able to make good the delay.  Again, presumably as Fan was bringing in good business, KG were willing to live with this breach.  Up till then, KG were very accommodating towards the breaches.  Not a single warning letter was issued in respect of the breaches, even though similar breaches were committed after the issue of the first warning letter.

240.  KG's accommodating attitude began to take a turn in September 2005 when Fan's aggressive marketing was under fire from the Education and Manpower Bureau as a result of his questioned statement in the 756^th issue of Yes! magazine that his students scored the most number of grades A, B and C in the open examinations.  PW1 and PW2 interviewed Fan and requested for a written explanation.  Fan said that he had neglected applying for permission to place the advertisement but insisted that he had instructed an agent to carry out a survey and had confirmation from his agent that the questioned statement was true.  They gave Fan two options, either to withdraw the advertisement or to provide proof to substantiate the questioned statement.  Up to that stage, KG's complaint or warning was only made verbally. 

241.  Despite repeated demands, Fan failed to provide proof to substantiate his questioned statement.  Not only that, in the meantime, KG discovered Fan continued placing advertisements in further issues of Yes! magazine without prior approval.  PW1 sought legal advice from their then solicitors and prepared a three-page warning letter in which KG referred to the two current breaches related to the advertisements in Yes! magazine and cited all the earlier breaches.  On 12 October 2005, PW1, PW2 and another staff member interviewed Fan and served the letter on Fan.  Fan acknowledged receipt of the warning letter without any objection.

242.  Fan's attitude was recalcitrant.  He continued to place advertisements in Yes! magazine in October 2005 without seeking approval.  KG issued two further follow up warning letters dated 25 October and 4 November 2005 to Fan in connection with the unauthorised advertisements in Yes! magazine.  Except for the 756^th issue and 755^th issue which KG were not then aware of, the breaches were all technical because had Fan applied approval would have been granted.

243.  In the same month, Fan wrote two articles in his lecture notes for Form 5 Regular Course in October 2005 to attack another English tutor for copying his style of teaching.  He used inappropriate trendy slang which seriously damaged the image of KG as an educational institute.  As a result of complaint from students, KG issued the fourth warning letter to Fan dated 14 November 2005.  This breach was not technical and trivial.  Fan had been warned by the first warning letter of the need to submit his lecture notes for approval.  In wanton disregard of that obligation, he distributed lecture notes which were not approved and which contained inappropriate trendy slang.  The breach was both wilful and substantial.

244.  In the same month, Fan also committed further breach by including Chau's promotional material in his lecture notes in breach of the GN and the agreement with PW1 reached on 4 November 2005.  On 15 November 2005, KG issued the fifth warning letter to Fan in connection with this breach.  This breach was also wilful and substantial.

245.  On 3 April 2006, in breach of the 2003 Agreement, Fan undertook teaching on the website, www.my100fun.com, without approval.  He ignored the warning given to him by PW3 and resisted PW1's attempt to contact him about the unauthorized on-line teaching.  This breach was wilful and substantial. 

246.  At about the same time, he started collecting personal data from students indiscriminately in breach of the TG and GN.  He continued to do so despite warning from PW3.  This breach was wilful and substantial.

247.  Then, in further and repeated breach of the 2003 Agreement, Fan conducted on-line teaching on the website on 22 April 2006.  Eventually, KG accepted Fan's breach as repudiation of the 2003 Agreement.

248.  As submitted by Mr Pow SC, there was a history of persistent, and repeated breaches, some of which were serious.  Despite the issue of the first warning letter, the nature and seriousness of Fan's breaches escalated.  In short, despite repeated warnings, Fan wilfully ignored his obligations under the TG and GN to submit lecture notes for registration and approval or to apply for approval before placing advertisements.  He committed further and more serious breaches.  The triggering breaches committed in April 2005 were very serious breaches (assuming that they were not breaches of condition).  The second on-line teaching breach, in particular, was committed wilfully and against warning.  Fan even closed his ears to PW1 before committing the breach.  His attitude was most recalcitrant.  While short of declaring that he was not going to perform the 2003 Agreement, Fan evinced an intention to perform it the way he wanted it to be performed and not in accordance with its terms. 

249.  Whether the triggering breaches when viewed against a history of persistent, wilful and serious breaches despite repeated warning, constituted a repudiatory breach as would justify the innocent party in treating himself as discharged depends on the consequence of the breaches.  A number of expressions have been used to describe the circumstances that warrant a discharge.  The most common being that the breach must “go to the root of the contract” or “affect the very substance of the contract” or “frustrate the commercial purpose of the venture”.  At the present day, the test which is most frequently applied is that stated by Diplock LJ, as he then was, in Hong Kong Fir Shipping co Ltd v Kawasaki Kisen Kaisha Ltd: “Does the occurrence of the event deprive the party who has further undertakings to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?”  But I would prefer the more modern formulation of the test by Potter LJ in Shyam Jewellers Ltd v Cheeseman that the potency and legal effect of such a breach falls to be judged in the light of the seriousness of the breach and its effect upon the continuing performance of the contract.  In that case the breach was a failure or delay in payment of an instalment.  I think the test is capable of general application.  The court has to examine all the circumstances of the breach and consider the seriousness of the breaches, the consequences, the implications for the future performance of the contract and the likelihood of repetition.  The court has to assess the nature and effect of the breach objectively.  It can only concern itself with the reasonable perceptions and reactions of the party asserting a repudiatory breach.

250.  In the present case, the essence of the 2003 Agreement was cooperation in the running of the tutorial schools in which Fan's principal obligation was to provide teaching services and KG's obligation was to provide school premises and administrative and supporting services.  The parties were to mutually benefit from the cooperation by sharing the course fees paid by the students.  Fan's delay in submitting course outlines and his Otenian warrant system caused KG some inconvenience in the operation of their schools.  His unauthorised advertisements and unapproved lecture notes containing exaggerated statements and inappropriate trendy slang slightly dented the image of KG as a responsible educational institute.  His lecture notes containing Chau's promotional material undermined KG's authority in the management of the tutorial schools.  But all those breaches did not seriously affect the operation of the tutorial schools.  Fan's displaying of the marking scheme resulted in a complaint from the HKEAA, but Fan promised not to do so again.  His exaggerating statement in the 756^th issue of Yes! magazine provoked some objection from the Education and Manpower Bureau.  But Fan ceased using that questioned statement in his subsequent advertisements.  There is no evidence of any serious impact on KG.  Most of those unauthorised activities had publicity value for Fan as well as KG and would have been permitted, had he sought prior approval.  Albeit late, Fan submitted the course outlines in time for distribution before enrolment.

251.  The most important conduct relied on by KG are the triggering breaches.  Fan committed the two triggering breaches deliberately.  The last breach was committed in total wanton disregard of PW1's concern for the breach.  The triggering breaches touched on the nerves of KG and caused grave concern.  For reasons as already explained, the on-line teaching was unlikely to affect KG's student intake or income.  As for the students' personal data breach, there was nothing to suggest Fan had any immediate plan in enticing students from KG by the use of students' personal data collected by Fan and his assistants.  In fact, given the strong bond between students and tutor, withholding the students' personal data could do little to prevent students from following Fan if Fan was to teach in another tutorial school.  Those breaches, to the extent they were committed, did not have serious consequences for KG.

252.  Furthermore, those breaches were breaches of negative obligations, i.e. prohibitions as opposed to obligations of a positive nature such as teaching and related duties, which was the essence of the 2003 Agreement.  Despite all the breaches, Fan was performing the essential part of his obligation under the 2003 Agreement, i.e. teaching.  He performed his teaching function up until 24 April 2006 when KG terminated the 2003 Agreement.  There was nothing to suggest that he had been dilatory in performing his teaching function.  There was nothing to suggest that he would abandon the 2003 Agreement. 

253.  The more serious concerns are the implications Fan's repeated breaches and recalcitrant attitude towards the breaches had for the future of the contract and likelihood of repetition.  Though Fan clearly evinced an intention to perform the 2003 Agreement not in the way the parties had originally contemplated, there is nothing to suggest that he would abandon the agreement or that he would not perform his essential obligation under the agreement.  Though late, he prepared the course outline for the next academic year before the time for enrolment.  He conducted his classes and put in extra effort in arranging extra lessons for his students, in arranging access to his website by students and oral mock examination practice.  He might be doing that for promoting his own personal image or using those means as a pretext for collecting students' personal data.  However, those acts were also beneficial to their cooperation.  Though Fan had evinced an intention not to perform the 2003 Agreement in accordance with its terms but only in the way he wished to perform it, he had not departed from the essence of that agreement.  Had Fan been dilatory in the performance of his teaching duties, he would have been guilty of breach of implied term of the agreement.  Then the cumulative effect of all those breaches may amount to repudiatory breach.  But even then, it would have been his breach of the above implied term which would carry more weight.

254.  The scenario would also be wholly different, if Fan conducted full scale teaching of English language in a competing tutorial school instead of on the website and solely related to examination skill and his mock examination papers.  He would have enticed students away from KG.  At least, KG would have lost students who otherwise would have enrolled with KG had the exclusiveness of the 2003 Agreement been observed.  KG would have lost their edge in the competition and would have suffered real financial loss.  Under that scenario, the single breach of the undertaking would have been a repudiatory breach. 

255.  Even if the triggering breaches, assuming that they were not breaches of condition, were viewed against the background of serious persistent breaches despite repeated warning, they did not have the effect of frustrating the commercial purpose of the tutorial schools or deprive KG substantially the whole benefit under the 2003 Agreement.  On that assumption, I am unable to find that all the breaches taken together constituted a repudiatory breach. 

Renunciation - conduct evincing an intention no longer to be bound by the contract

256.  The law on renunciation was succinctly summarised by the learned authors of Chitty on Contracts, 13^th ed, Vol 1 at paragraph 24-018 as follows:

 “A renunciation of a contract occurs when one party by words or conduct evinces an intention not to perform, or expressly declares that he is or will be unable to perform, his obligations under the contract in some essential respect.  The renunciation may occur before or at the time fixed for performance.  An absolute refusal by one party to perform his side of the contract will entitle the other party to treat himself as discharged, as will also a clear and unambiguous assertion by one party that he will be 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.  Also the party in default:

 “… may intend in fact to fulfil (the contract) but may be determined to do so only in a manner substantially inconsistent with his obligations.”

  or may refuse to perform the contract unless the other party complies with certain conditions not required by its terms.  In such a case, there is little difficulty in holding that the contract has been renounced.  Nevertheless, not every intimation of an intention not to perform or of an inability to perform some part of a contract will amount to a renunciation.  Even a deliberate breach, actual or threatened, will not necessarily entitle the innocent party to treat himself as discharged, since it may sometimes be that such a breach can appropriately be sanctioned in damages.  If the contract is entire and indivisible, that is to say, if it is expressly or impliedly agreed that the obligation of one party is dependent or conditional upon complete performance by the other, then a refusal to perform or declaration of inability to perform any part of the agreement will normally entitle the party in default to treat himself as discharged from further liability.  But in any other case:

 “It is not a mere refusal or omission of one of the contracting parties to do something which he ought to do, that will justify the other in repudiating the contract; but there must be an absolute refusal to perform his side of the contract.”

  If one party evinces an intention not to perform or declares his inability to perform some, but not all, of his obligations under the contract, then the right of the other party to treat himself as discharged depends on whether the non-performance of those obligations will amount to a breach of a condition of the contract or deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed.  Words or conduct which do not amount to a renunciation will not justify a discharge.” 

(My emphasis underlined)

257.  The situation is simple where a party expressly tells the other party that the contract is at an end, that he will not further perform the contract or has no ability to perform his remaining obligations under the contract.  Short of such express intention, the court has to infer from the conduct of the party whether he intends to perform the contract in accordance with its terms.  The test of whether an intention is sufficiently evinced by conduct is whether the party in breach has acted in such a way as to lead a reasonable person to the conclusion that he does not intend to fulfil his part of the contract: see Universal Cargo Carriers Corp v Citati [1957] 2 QB401 at 436, Andre & Cie v Marine Transocean Ltd [1981] 1 QB 694 at 706 and Freeth and Another v Burr (1874) LR 9 CP 208.  The test is an objective one which is independent of the subjective intention of the party.  The court just infers intention from the conduct of the party in breach.  In drawing the necessary inference, the court must consider the conduct of the party in breach as a whole: see Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277.

258.  If the conduct is unambiguous, the intention not to perform can readily be drawn.  If the party puts it beyond his means to perform or disposes of the subject matter of the contract, such conduct obviously evinces an intention no longer to be bound by the contract.  Thus, if the party disposes of his plant and equipment necessary for the performance of the contract or sells the subject matter of a contract for sale of specific goods to another, the inference can readily be drawn that he no longer intends to perform his obligation under the contract.  If the conduct is ambiguous, it becomes difficult to draw the necessary intention.

259.  Repudiation or renunciation of a contract is a serious matter.  Thus, conduct short of a repudiatory breach, which is necessary to evince this intention not to perform, must be an absolute refusal to perform.  This intention is not to be inferred lightly.  In The Mersey Steel And Iron Co v Naylor, Benzon & Co (1884) 9 App Cas 434, Lord Selbourne said at 438-439 that the court must look at the:

“… actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is, so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind, and whether the other party may accept it as a reason for not performing his part …”

Similarly, in Freeth v Burr (1874) LR 9 CP 208, Keating J held at 214:

“It is not a mere refusal or omission of one of the contracting parties to do something which he ought to do, that will justify the other in repudiating the contract; but there must be an absolute refusal to perform his part of the contract.  Non-payment is an element.  But, looking at all the circumstances of this case - a rising market; …, I do not think they shew an intention on the part of the plaintiffs to abandon the contract.  As upon the facts there appears to have been not only no absolute refusal to perform the contract by the plaintiffs, and, what is important, no evidence of inability on their part to perform it, I think the defendant had no right to treat the contract as rescinded and to refuse to deliver the remainder of the iron.”

260.  Where the party in breach evinces an intention short of an absolute refusal to perform, the innocent party is not entitled to renunciation.  This is because words or conduct which do not amount to a renunciation will not justify a discharge.  The party in breach may have never made any express declaration not to perform the contract.  He may even avowedly affirm his intention to perform the contract but in a manner different from that which he has contracted or he may only wish to perform part of the contract which is more lucrative but not the part which is less so or he may even wish to re-negotiate the terms of the contract.  This is particularly common in construction contracts where a contractor wishes to increase the contract rate or alters the mode of performance.  Whether an innocent party under such circumstances is entitled to renunciation depends on whether the non-performance of those obligations amounts to a breach of a condition of the contract or repudiatory breach which will deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed: see Federal Commerce & Navigation Co Ltd Molena Alpha Inc [1979] AC 757. 

261.  Hitherto, Fan had made no express statement that he would not perform his part of the agreement.  There was no absolute refusal to perform his positive obligations under the agreement.  KG's right to accept Fan's breach as repudiation of the 2003 Agreement falls to be decided on whether the two triggering breaches were breaches of condition of the 2003 Agreement and/or whether all the breaches taken together amounted to repudiatory breach which deprived KG of substantially the whole benefit which it was the intention of the parties that KG should obtain from Fan's performance of his obligations under remaining term of the 2003 Agreement.  Thus, counsel's argument based on this limb is a futile exercise.  Ultimately, on the facts of this case, the question whether Fan evinced an intention no longer to be bound by the 2003 Agreement depends on whether the two triggering breaches were breaches of conditions or whether the breaches taken together constituted repudiatory breach.

262.  I have reached the conclusion that the triggering breaches were breaches of condition of the 2003 Agreement and that if they were not, all the breaches taken together did not constitute repudiatory breach.  When the triggering breaches, as breaches of conditions, were viewed against the history of wilful and persistent breaches despite repeated warning, the only reasonable inference is that Fan had abandoned the 2003 Agreement.  He had determined to perform part of that agreement only and in a manner not originally contemplated by the parties.  He was forcing a new agreement without the two essential conditions on KG.  He had clearly evinced an intention no longer to be bound by the 2003 Agreement.  KG was entitled to renunciation.  On the other hand, if the triggering breaches were not breaches of conditions, then for reasons as I have explained, even if all the breaches were taken together, they did not constitute repudiatory breach.  If so, by his breaches, Fan had not indicated that he would not perform the essential obligation under the 2003 Agreement, which was teaching.  He had not evinced any intention not to be bound by that agreement.

263.  On the facts, I find that the prohibition against collecting students' personal data and the undertaking to conduct teaching exclusively on the school premises of KG were conditions of the 2003 Agreement.  Fan was in breach of condition of the 2003 Agreement.  Though Fan had never expressed any absolute refusal to perform his positive obligations under the agreement, by his breach of conditions and his history of persistent and wilful breaches, he had evinced an intention that he no longer considered himself bound by the 2003 Agreement.  In either event, KG were entitled to accept Fan's repudiation of the 2003 Agreement and to claim damages for repudiation.

remedies

264.  Counsel have no dispute that if Fan was in breach of condition of the 2003 Agreement, KG were entitled to the following heads of damages and were under a duty to mitigate their loss: (1) refund of course fees to students whose courses in May 2006 were cancelled; and (2) loss of income for the balance of the twenty-six months' term of the agreement. 

265.  Mr Pow SC suggests to assess the refund of course fees based on KG's accounting record subject to deduction of the refund made to four students, namely DW2, DW6, DW7 and DW8, which Fan disputed and which KG are prepared to concede.  He also suggests to assess the loss of income by working out KG's average monthly income derived from Fan during the last thirteen months of his service, i.e. from 10 April 2005 to 8 May 2006 and then multiply that by twenty-six.  He claims a total amount of course fees refunded after deducting a sum of $1,875 in dispute to be $1,126,483 and loss of income of $9,266,328 after mitigation, making a total of $10,392,811. 

266.  Mr Lam principal argument is that KG have failed to prove damages.  He challenges KG's effort in mitigating the loss.  He disputes the amount of refund paid out and argues that KG failed to take into account the income earned by causing Fan's students to switch to other tutors.  He criticises the lack of income data for yearly comparison.  I do not think the criticisms are such as to justify a conclusion that KG have failed to prove damages.  I shall deal with these criticisms in the course of assessing KG's damages.

267.  Though not so argued by Mr Lam, I think there are flaws in Mr Pow SC's approach of assessing loss of income.  The academic year for tutorial school starts from August to July of the following year.  Student intake in tutorial schools fluctuates from month to month.  In particular, June and July are the low intake months.  To use a thirteen-month period as basis for calculating the average monthly income would give a distorted picture of the average monthly income in a twelve-month cycle.  It would be fairer to use the income in a twelve-month cycle to assess the average monthly income.  Better still, the loss in income should be assessed on the basis of the income for two such twelve-months' periods plus the income for the months of May and June 2006, if they could be assessed.

268.  The refund paid for the courses cancelled in the month of May 2006 is in fact the best evidence of what KG would have received had Fan not repudiated the 2003 Agreement.  If such actual information is available, there is no reason to assess KG's loss for that month by using average monthly income.  KG's loss for that month should be assessed at 30% of the amount refunded by the 4^th Plaintiff and 40% of the amount refunded by the other six Plaintiffs.  This approach will also circumvent Fan's dispute that not all refunds were actually paid to the students.  But I shall nevertheless analyse the evidence of Fan's witnesses in that respect for what that evidence is worth.  June and July are particularly low months for tutorial schools.  KG's loss for June 2006 should be assessed separately based on the actual income for June 2005. 

269.  Furthermore, KG is not entitled to be reimbursed the refund they paid out for the courses cancelled during May 2006, if they are to be awarded damages for the loss of income for that month as part of the twenty-six month period.  KG would be receiving double compensation if they are also awarded the course fee refunded.

270.  I shall adopt the above approach in assessing the damages.  Instead of assessing KG's loss over a twenty-six months' period plus the amount of course fees refunded, I shall assess their loss for the month of May 2006 based on the amount of course fee refunded, their loss for June 2006 based on the income of June 2005 and their lost for two twelve-month periods based on their income from May 2005 to April 2006, which was the latest complete twelve-month period.

KG's loss for the month of May 2006: Refund of course fee

271.  As a result of the termination of 2003 Agreement, Fan's lectures after the termination were all cancelled.  KG had to refund course fees to the students.  Upon enrolment to a particular course, a student was issued the appropriate number of coupons which would permit their admission into the course which he was enrolled.  When a student applied for refund, he had to surrender his unused coupons and sign a receipt for the refund received.  The refunds paid out were entered into KG's sub-ledgers.  KG produced ledgers and sub-ledgers for the period from 25 April 2006 to 22 June 2006 in which the refunds for the courses in May 2006 were made.  These were contemporaneous business records.  Each entry in the ledger represented the total sum of a number of refund receipts described in that entry.  When the relevant receipts for that entry were added up together, the total sum matched the figure in the ledger entry.  After making adjustments for certain errors in the accounting process, KG claim a total of $1,128,358 had been refunded to 5,000 odd students for cancellation of their classes.

272.  Within ten days of the termination of the 2003 Agreement, Fan commenced teaching in Modern Education since 5 May 2006.  He placed extensive advertisements in Apple Daily, Oriental Daily, 新Monday magazine, Commercial Radio, the website of Modern Education and the website, www.examfighter.com.  In the newspaper advertisements, Fan invited his students from KG to complete their former courses in Modern Education for free by producing their coupons issued by KG or other evidence of registration. 

273.  Fan disputed the amount of refund KG had paid out.  He called four former students, DW2, DW6, DW7 and DW8.  All those students contacted Fan's assistants in answer to Fan's open call made during class for students who had not received refunds from KG despite cancellation of the courses to give evidence for Fan. 

274.  DW2's evidence was that he was told by KG's counter staff to switch to another tutor.  The staff suggested him to join Derek Liu's classes.  He was not interested but nevertheless agreed.  He surrendered his coupons for Fan's course and was given fresh coupons for Derek Liu's course.  He did not receive any refund and did not sign any receipt.  He denied the receipt produced by KG was signed by him.  He did not attend Derek Liu's course.  He paid to join Fan's course in Modern Education. 

275.  It would be useful to refer to what PW5 said under cross-examination.  PW5 agreed that if a student switched his course, he had to surrender his coupons for the former course in exchange for the coupons for the new course.  In accounting entries, the student would be treated as having been refunded the course fee for the outstanding classes under the former course and paid for the new course.  She could not distinguish among the refunds made which were genuine refund cases and which were cases where the students were transferred to another tutor.  Her evidence supports DW2's, except for the issue about DW2's signature on the receipt. 

276.  DW2's evidence suggests that there was a system under which KG's counter staff would persuade students to switch to another tutor.  That made business sense.  But his further suggestion that KG's staff forged his signature does not.  If he agreed to be transferred to another class, there was no need for the staff to forge his signature on the receipt.  He would naturally sign the receipt in exchange for the coupons for Derek Liu's course.  Neither KG nor the staff who handled the transfer would benefit by forging DW2's signature on the receipt.  His evidence suggests there was a massive scheme by KG to instruct all their counter staff to unnecessarily forge signatures of students who agreed to transfer to other tutors or who for whatever reason were not refunded their course fees.  Such a scheme would amount to criminal deception.  It is improbable that PW1 or other members of the management in KG would have ordered a scheme of that magnitude which could easily be exposed by any dissatisfied staff or any student and may result in criminal liability.  It is more likely that in blind loyalty to his respected teacher, this young teenager proffered a lie which he thought would help his respected teacher.  He had indeed not received a refund and thought he must adhere to that story even to the extent of denying his signature on the receipt which most probably he had signed as part of the course transfer process.  Except for his denial of his signature, I accept his evidence.

277.  The evidence of DW6, DW7 and DW8 were all similar.  They contacted Fan's assistants in answer to Fan's call.  They had not applied for refund from KG and had not received any refund from KG.  Some of them agreed that the signatures on the receipts which were purportedly signed by them were similar to their signatures but denied they were theirs. 

278.  Their evidence also suggest that there was this massive conspiracy in KG to produce false evidence of refund by forging students' signatures.  For reasons as explained in paragraph 274, I think this is too far reaching to be a real possibility.  If these three witnesses had not obtained a refund, they could have produced their unused coupons.  They responded to Fan's call at an early stage to give evidence for Fan.  At that time, they would not have lost those coupons.  But none of them could produce the unused coupons.  If they had given the coupons to Modern Education in exchange for free lessons, Fan could have obtained those coupons from Modern Education.  There was no reason why Fan's solicitors would not have advised Fan to obtain such evidence.  On the other hand, in order to perpetrate the conspiracy, KG would have to generate tens of thousands of false coupons to make good their case.  Such a scheme would be far too risky to be carried out.  It would involve too many co-conspirators and a very high risk of exposure.  On the other hand, apart from DW2, only three out of the five thousand odd students turned up to give evidence for Fan in response to his open call.  That suggests it is more likely than not that those three witnesses were not telling the truth.  I think they had either received their refund or, like DW2, had agreed to switch to another tutor in KG.  I note that some of them are currently university students whose evidence should carry great weight.  I have warned myself to be extremely careful if I am to reject their evidence.  But regrettably, I find that in blind loyalty they chose to betray their sense of fairness and social conscience to give false evidence in support of their respected tutor.

279.  I reject the evidence of DW2, DW6, DW7 and DW8 about not having received refund from KG.  But what does that leave me with the case of KG?  It made good business sense for KG to instruct their staff to persuade students to switch course as a first option.  Out of confusion, it is likely that desperate students would have agreed to the proposal readily.  There is no way that KG could show which refunds were genuine and which were transfers.  

280.  According to the statistics prepared by PW5, the student intake of the various English tutors in KG from November 2005 to June 2006 was as tabulated below:

Name of Tutor	11/05	12/05	1/06	2/06	3/06	4/06	5/06	6/06
Shum	10,322	11,720	8,009	9,456	10,662	5,362	4,169	1,520
Fan	7,692	7,351	6,284	6,731	6,467	6,698	-	-
K Lau	198	153	138	187	95	52	72	-
A Leung	432	472	346	428	573	379	446	306
G Law	33	33	26	-	27	9	-	-
D Liu	3,069	3,342	2,298	2,823	3,208	2,050	2,086	647
N Lui	83	82	57	50	93	-	-	-
K Tong	361	349	294	269	247	251	172	-
Total	22,190	23,502	17,452	19,944	21,372	14,801	6,945	2,473

281.  In examining the above table, one must bear in mind that the low intake months for tutorial schools are June and July, which tie in with the end of examination period.  Student intake for some tutors was down to nil in June 2006 or a very small fraction of their maxima.  Even for Shum (PW4), whose team had the largest number of students, his student intake for June was down to about 13% from the year high.  Another limitation in studying the above table is the lack of data for a comparable period in the previous academic year.   

282.  According to the data produced by PW5, Fan's student intake for April and May were very similar, but there was a significant drop for the month of June.  Assuming this to be the general pattern of student intake in KG towards the end of the academic year, the above table does not show any significant increase in student intake by the other tutors for the month of May 2006 which could have been attributable to students transferred from Fan.  Three tutors showed very slight increases in their student intake in May 2006 as compared with that in April 2006.  The student intake for Kris Lau, Anthony Leung and Derek Liu for May 2006 increased by 20, 67 and 36 respectively over their intake for April 2006, totalling 123.  The above table also shows that it is highly improbable that any significant fraction of Fan's 5,000 odd students who received refund switched to other tutors.  This suggests that cases like DW2 who was persuaded to switch from Fan to other tutors were but rare.  This is consistent with the students' affinity to their tutor which is characteristic of the student-tutor relationship in tutorial schools.  It should also be borne in mind that of the four students called by Fan, only DW2 mentioned about switching to another tutor, the other three did not.  This confirms that cases of Fan's students switching to other tutors were very rare.  Assuming that those 123 students were all Fan's students, that was equivalent to no more than 2.5% of the 5,000 odd students who received refund.  Any benefit KG would have obtained by such switching was negligible.

283.  PW5 proved that a total amount of $1,128,358 had been refunded to students.  KG's loss for the month of May 2006 would have been 40% of that amount, i.e. $451,343.  This would do away with guesswork in estimating how many students had been persuaded to switch course as I have done above.  KG might have slightly benefited because the 4^th Plaintiff's income share ratio was lower.  The 4^th Plaintiff's income was the second lowest in KG, being about 2% of the entire group.  The extra benefit to KG would be negligible.  As an adjustment, I would round down the amount to $451,000.  This is rather nominal and subjective, but an estimate is an estimate.  The figure is more favourable to Fan than using the thirteen months' average monthly income method suggested by Mr Pow SC.

KG's loss of income for the month of June 2006

284.  According to Appendix 2 prepared by PW5, the 6^th Plaintiff did not receive any course fees attributable to Fan for the period from May to July 2005.  Presumably that was because Fan only commenced teaching in the 6^th Plaintiff in August 2005.  Had Fan not been in breach of the 2003 Agreement, the 6^th Plaintiff would have derived income from his courses conducted in the 6^th Plaintiff's school in May and June 2006.  It would therefore be necessary to assess the course fee receipt for those months.  The total course fees received by the 6^th Plaintiff for the nine months from August 2005 to April 2006 was $272,660.  Those nine months were all regular months.  It would be fair to estimate the course fees which would have been received by the 6^th Plaintiff for May and June 2006 at one-ninth of the total course fees received for the other nine months, i.e. $30,296 per month. 

285.  The course fees received by the 1^st, 2^nd, 3^rd, 4^th, 5^th and 7^th Plaintiffs attributable to Fan for June 2005 were respectively, $143,215, $27,340, $7,140, $0, $17,860 and $57,630.  Assuming that these six Plaintiffs received the same amount of course fees in June 2006 and that the course fees which the 6^th Plaintiff would have received in that month was $30,296, KG's estimated loss for June 2006 assessed at 40% of the total of the above sums is $113,392.

KG's loss of income for the period from July 2006 to June 2008

286.  Except for the 6^th Plaintiff, which does not have a complete twelve-month period of operation, the latest complete twelve-month period in respect of all the other Plaintiffs available is the period from May 2005 to April 2006.  To estimate KG's total loss for the two twelve-month periods, it is necessary to estimate the receipts of the 6^th Plaintiff derived from Fan for May to July 2006.  I have estimated the receipts for May and June 2005 to be $30,296 per month.  That figure is inappropriate for the month of July 2006 which is a month with particularly low student intake.

287.  I shall assess the course fee which would have been received by the 6^th Plaintiff for July 2006 by first finding out from all the other six Plaintiffs the percentage which the total course fees received in July 2005 has to bear on the total course fees received during the other eleven months and then use that percentage and the 6^th Plaintiff's total receipts for the other eleven months as a basis to assess the course fees which the 6^th Plaintiff would have received from Fan's courses, had Fan taught in July 2005.  The total amount of course fees received by all the other six Plaintiffs for July 2005 was $214,808 and that received for the total of the other eleven months was $20,744,429.  The percentage which the course fee received in July had to bear against the total of the other eleven months was 1.035%.  The total amount of course fees received by the 6^th Plaintiff for August 2005 to April 2006 was $272,660 and that for May and June 2005 is estimated to be $30,296 per month, making a total of $333,252 for the other eleven months.  Hence, the amount of course fees which the 6^th Plaintiff would have received from Fan's courses had Fan taught in July 2005 is estimated to be $3,449.  Next, I shall assume that the course fees which would have been received by the 6^th Plaintiff in July 2006 would be the same as that which it could have received in 2005 had the school been in operation, i.e. $3,449.  Accordingly, I estimate the total course fees received by the 6^th Plaintiff for the twelve-months period to be $336,701.  This method of assessment overcomes the difficulty created by the lack of data for yearly comparisons as argued by Mr Lam.

288.  Annex I shows the course fees received by the seven Plaintiffs for the twelve-month period from May 2005 to April 2006.  These figures are extracted from Appendix 2 prepared by PW5, which is not in dispute.  The loss suffered by each Plaintiff is computed by applying the appropriate income share ratio to its total receipt in the twelve-month period.  KG's loss for the twelve-month period from 10 May 2005 to 8 May 2006 is estimated to be $8,479,828.  KG's loss for two twelve-month periods from 10 May 2006 to 8 May 2008 is therefore estimated to $16,959,656.  The computation of KG's loss is as shown in Annex 1 which forms an integral part of this judgment.

289.  KG engaged Mia Wong as Fan's replacement.  At about the same time, two other tutors, Cecilia Tong and Alex Chan were also recruited by KG.  Mr Lam submits that these two tutors were also hired to replace Fan.  However, according to PW1, these two tutors were recruited to replace K K Wong, Kris Lau, K Tong, George Law and herself.  The income generated from these two tutors were not even sufficient to cover the loss of income from the ones whom they replaced.  For this reason, I could have no doubt in the correctness of PW1's evidence.

290.  Mia Wong joined KG on 24 May 2006 and commenced teaching on 3 July 2006.  KG received no income from her for the first two months because that was vacation season for tutorial schools.  KG's income derived from her for the period from July 2006 to June 2007 was $4,059,631 and for the period from July 2007 to June 2008 was $4,585,363.  Thus, the income derived from Mia Wong for the two twelve-month period was $8,644,994. 

291.  Accordingly, KG's loss of profit after mitigation was $8,879,054 (i.e. $451,000 + $113,392 + $16,959,656 - $8,644,994), which is about $1.5 million less than that suggested by Mr Pow SC.

Injunction

292.  KG has filed a claim for injunction against Fan for teaching in Modern Education within a year of his repudiation of the 2003 Agreement.  Under clause 3 of the 2003 Agreement, in the event of his premature termination or repudiation of the agreement, Fan may not take up teaching in any other tutorial school for a period of one year.  Fan commenced teaching in Modern Education within two weeks of his repudiation of the 2003 Agreement.  However, one year has lapsed.  It is futile to make any injunction order against Fan now.  In any event, KG would be adequately compensated for by damages for wrongful repudiation of the 2003 Agreement.

Counterclaim

293.  Fan had obtained judgment on part of his counterclaim in the amount of $2,650,661 in respect of his share of income for the period from 10 March 2006 to 24 April 2006 which had been withheld by KG.  During the course of the trial, Fan abandoned another part of his counterclaim based on the shortfall in income share arising out of the discounted course fees offered to students of KG's day schools.  His remaining counterclaim is for $1,144,187 being his loss of income for the period from 26 April 2006 to 30 June 2006.  Being the party in breach of the 2003 Agreement, he is not entitled to that counterclaim at all.  These remaining parts of his counterclaim are therefore dismissed.

conclusion

294.   In conclusion, I find that Fan was in wrongful repudiation of the 2003 Agreement.  Accordingly, I enter judgment in favour of the Plaintiffs against the Defendant.  I award the Plaintiffs damages assessed in the amount of $8,879,054 together with interest with effect from 25 April 2006. 

295.  Except for part of Fan's counterclaim in the amount of $$2,650,661 in which judgment had been obtained, the remaining parts of his counterclaim are hereby dismissed.  KG had paid into Court the said judgment sum together with interest accrued up to 16 May 2008, totalling  $3,058,774.84, pursuant to the order of Master Roy Yu.  As KG's award far exceeded the part of the counterclaim awarded to Fan, the said sum paid into Court and all interest accrued thereon shall be paid out to KG after fourteen days, pending any possible application Fan may wish to make.  The said sum paid out shall be used to partially set off against the judgment sum awarded to KG.  

296.  The Defendant conducted this litigation in bad faith.  He put the Plaintiffs to strict proof of many matters which should have reasonably been conceded.  Many of those matters are indisputable.  His putting KG to strict proof of his signature on the income share records is a blatant example of his lack of good faith in the conduct of this litigation.  He changed his case at the last minute.  He put forward nebulous defences.  His conduct made it necessary for the Plaintiffs to call additional witnesses, prepare voluminous documents and for counsel to advance unnecessary arguments.  He wasted much time and costs.  The trial was unnecessarily lengthened from eight days to fourteen days.  Accordingly, I make a costs order nisi that the Defendant shall pay half of the Plaintiffs' costs to be on an indemnity basis and half to be taxed on party and party basis with certificate for two counsel.

Annex 1