WONG LUNG v. THE CHINESE UNIVERSITY OF HONG KONG EMPLOYEES CREDIT UNION

HCA 1122/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1122 OF 2010

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J U D G M E N T

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A. INTRODUCTION

1.  The plaintiff was a long-serving director and President of the defendant, being a not-for-profit organisation established under the Credit Union Ordinance, Cap 119 (“CUO”) to promote thrift amongst employees of the Chinese University of Hong Kong.

2.  As set out in the plaintiff’s Opening Submissions, the background of this case is as follows: –

(1)  The plaintiff was an ex-employee of the Chinese University of Hong Kong and currently is still a member of the defendant;

(2)  Particularly, the plaintiff had been the President of the defendant for 8 years until 22 May 2009 and had additionally acted as the Chief Financial Supervisor of the defendant from October 2008 to 3 June 2009 whereby he was responsible for investing and managing the funds of the defendant;

(3)  Around the time the plaintiff was to retire from the Chinese University of Hong Kong, he was desirous to step down from his posts as held with the defendant and as a result of which discussions were held within the defendant at board level and at the Supervisory Committee;

(4)  The idea at that time was to recruit a full-time financial adviser/supervisor to handle the investments of the defendant;

(5)  Thereupon, a draft engagement agreement, based on the form of the Credit Union League of Hong Kong, was circulated and discussed at board level and independent legal advice was sought;

(6)  Despite the board of the defendant having the inclination that the plaintiff was a suitable candidate for the post, the defendant had actually taken the step to offer the post for open recruitment on its own website, albeit for a relatively short period of time;

(7)  Eventually, there was no other candidate for the post save for the plaintiff;

(8)  Under the aforesaid circumstances, the plaintiff resigned from his directorship/posts as held with the defendant and entered into the Engagement Agreement with the defendant;

(9)  The final and the executed version of the Engagement Agreement and the appointment of the plaintiff as the Financial Adviser of the defendant under the Engagement Agreement were unanimously resolved at the board of the defendant.

3.  The following terms of the Engagement Agreement are of significance:

(1)  Clause 1 provides that the plaintiff shall serve as an investment adviser of the defendant to provide the Services as defined therein;

(2)  Clauses 1.1 and 1.2 provide that the Services for which the plaintiff shall provide are advice and follow-up services both in writing and/or orally to the defendant on Hong Kong stocks, foreign currencies and other financial products which are currently available in the financial market of Hong Kong;

(3)  Clause 1.6 provides that the plaintiff shall comply with all applicable laws and regulations relating to the provision of the Services;

(4)  Clause 2 provides a return-based bonus scheme to the plaintiff and also set out the manner of payment;

(5)  Clause 3 provides that the defendant shall have the sole discretion to adopt or reject the plaintiff’s investment advice;

(6)  Clauses 4.1 and 4.3 provide that the Engagement Agreement shall continue for 12 months but nevertheless shall be terminated immediately where the parties cannot amicably continue the engagement;

(7)  Clause 6 provides that there shall be no employer-employee relationship between the parties and the plaintiff is engaged as an independent contractor.

4.  Pursuant to the Engagement Agreement, the plaintiff had between June 2009 and September 2009 provided Services to the defendant and the defendant had accepted and benefitted from such Services as rendered.  The plaintiff alleges that owing to the Services as rendered by the plaintiff, the defendant netted a gain of HK$756,276.71 and HK$32,486,010.72 respectively at the 1^st and 2^nd quarter of the Engagement Agreement.  By reason of the aforesaid, the plaintiff claims that he is entitled to Bonuses of HK$18,906.92 and HK$9,745,803.22 respectively under the Engagement Agreement.

5.  The said Bonuses were approved by the board of the defendant which was evidenced by two documents entitled Incentive Scheme duly compiled and signed by the then treasurer of the defendant, one Mr Ricky So.

6.  On or about 7 June 2009, the defendant duly effected and the plaintiff correspondingly received the Bonus for the 1^st quarter in the sum of HK$18,906.92.

7.  By a second cheque dated 8 October 2009, the defendant purported to effect and pay to the plaintiff part payment of the Bonus for the 2^nd quarter in the sum of HK$4,872,902.  The Plaintiff had duly cashed in the said second cheque.  However, on or around 10 October 2009, some of the directors of the defendant visited the plaintiff at his residence and requested the plaintiff to return the said sum of HK$4,872,902 to the defendant, under the pretext that such sum would have to be audited.  Acting on goodwill, the plaintiff had by his personal cheque returned the said sum of HK$4,872,902 to the defendant.

8.  Thereafter, the defendant had refused to pay any and/or any further Bonus to the plaintiff whether as agreed under the Engagement Agreement or at all, and had further instructed the plaintiff to suspend his Services and to close and settle all investment positions.

9.  The questions that have to be determined at this trial are: –

(1)  Whether the defendant is liable to pay Bonus and/or damages for breach to the plaintiff under the Engagement Agreement;

(2)  If so, what is the proper amount;

(3)  Whether the plaintiff is liable for the return of the 1^st Bonus.

Case for the plaintiff

10.  The plaintiff’s claim is a straightforward contractual claim for the total Bonus in the liquidated sum of HK$9,764,710.14 or, in the alternative, damages for breach of the Engagement Agreement to be assessed.

Case for the defendant

11.  The defendant contests liability on the following bases:

(1)  the Engagement Agreement is liable to be set aside for reason that the plaintiff was in breach of fiduciary duties as a director of the defendant in entering into the Engagement Agreement;

(2)  the Engagement Agreement was void and/or unenforceable by reason of illegality;

(3)  the Engagement Agreement was ultra vires and not binding on the defendant;

(4)  the defendant was entitled to rescind the Engagement Agreement on ground of misrepresentation; and

(5)  the Engagement Agreement shall not be enforced by reason of the Unconscionable Contracts Ordinance, Cap 458.

B.  BREACH OF FIDUCIARY DUTIES

12.  The plaintiff in his pleadings accepts (and in any event cannot seriously dispute) that as a director, he owed to the defendant fiduciary duties including (i) a duty to act in the defendant’s best interests, (ii) a duty not to place himself in a position in which his personal interests did or might conflict with the defendant’s interests and (iii) a duty not to misuse his position, knowledge or opportunity resulting from it, to his own or to a third party’s possible advantage.

13.  The law relating to the extent and application of fiduciary duties are well-settled and frequently applied in the courts.

14.  The following statement of the law by the High Court of Australia in Furs Limited And Tomkies and others (1935-1936) 54 CLR 583, at 592 illustrates the inflexible and stringent nature of the “no conflict rule” and rule against secret profits:

“In our opinion the decision of this appeal is governed by the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all the material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so, or all the shareholders acquiesce. An undisclosed profit which a director so derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company could not itself have obtained, or that no loss is caused to the company by the gain of the director. It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company. ...” (emphasis supplied)

15.  The rules governing fiduciary duties are so strict and inflexible that it does not depend on the extent of the adverse interest of the director, the fairness or unfairness of the transaction, or the genuineness of the transaction:Aberdeen Rail Co v Blaikie Brothers [1843-60] All ER 249, at 252 per Lord Cranworth LC.

16.  Liability to account for profits can arise from a fiduciary taking advantage of the opportunity or knowledge that his office has given him, the object being to prevent the fiduciary from misusing his position for personal gain.

17.  Absent fully informed consent or ratification by the shareholders in general meeting, the offending director will be liable to account for any profits made in breach of his duties no matter whether the company has in fact been damaged or had benefited by his action and no matter how honest and well-intentioned he is.  The absence or presence of good faith is irrelevant. [see: Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144 per Lord Russell; Menno Leendert Vos v Global Fair Industrial Ltd, HCA 4200/1995 (Judgment dated 1/12/2009)at paragraph 110 per To J; Grand Field Group HoldingsLtdv Chu King Fai, CACV 140/2014 (Judgment dated 20/01/2016)at paragraphs 4.3 and 4.4 per Cheung JA; Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296 at paragraph 135 per Ma J (as he then was)]

18.  At first blush, this inflexible rule might appear to be harsh on the fiduciary or may afford a windfall to the beneficiary.  However, as Ma J (as the Chief Justice then was) observed in Kao Lee & Yip (Ibid)at paragraph 136: –

“Viewed in this way, in one sense, an account of profits can be said to result in a windfall for the beneficiary. The justification for this is the public interest in maintaining the highest standards of loyalty and fidelity on the part of fiduciaries and, to this end, thus to ensure that fiduciaries are financially disinterested in the discharge of their duties... .” (emphasis supplied)

19.  Unless otherwise provided by the articles of association, there must be full disclosure of the material facts to and a resolution by the shareholders in general meeting approving the offending transaction in order for the fiduciary to avoid liability.  Importantly, mere disclosure to the board is not sufficient under the general law in the absence of express provision in the constitution displacing this default position [see:Grand Field Group Holdings (Supra) at paragraph 4.3 per Cheung JA].

20.  A director or officer cannot avoid liability by resigning in order to do that which, had there been no resignation, would have been a breach of fiduciary duty [see: Meagher, Gummow & Lehane’s Equity Doctrine & Remedies (5^th ed., 2015) at [5-105]; Liao Chen Toh v Loyal Intl Enterprises Co Ltd, HCA 2302/2014 (Decision dated 20/04/2016), at paragraph 63 per DHCJ Kent Yee].

21.  As to what constitutes sufficient disclosure of the material facts to give rise to informed consent by the principal: –

(1)  The burden of proving full disclosure as to the nature and extent of his interest lies with the fiduciary and it is not sufficient for him to merely state that he has an interest or to make such statements as would put the principal on inquiry; nor is it a defence to prove that had he asked for permission it would have been given.  Whether there is sufficient disclosure depends on the facts of each case, and the nature of disclosure [see: Hurstanger Ltd v Wilson[2007] 4 All ER 1118, at [33]-[36] per Tuckey LJ].

(2)  Depending on the circumstances, it may not be sufficient for a fiduciary to provide a copy of the relevant documents to the beneficiary.  The fiduciary should draw particular attention to terms which are onerous or adverse to the beneficiary’s interest and it matters not that the beneficiary could have appreciated or discovered it had they made the necessary investigations [see:United Dominions Corp Ltd v Brian Pty Ltd (1985) 60 ALR 741, at 744].

(3)  The fiduciary must specify the magnitude of what he stands to gain in the transaction in order to bring home the potential conflict of interest, particularly where the beneficiary consists of unsophisticated persons and in situations not conforming with usual market practice [see: Hurstanger Ltd(Supra) at [36] per Tuckey LJ].

22.  In the present case, the plaintiff was elected as the President of the defendant’s board for some 8 years since 2001 and also acted as its Chief Financial Supervisor since October 2008.

23.  There is no dispute that as President, director and Chief Financial Supervisor, he (like all directors on the defendant’s board) did not receive any remuneration for his positions.

24.  Indeed, the plaintiff could not receive remuneration from the defendant while remaining a director given the express prohibition against remuneration for directors (apart from the Treasurer) in paragraph 37(iii) of the defendant’s Bylaws (“Bylaws”), which is akin to a company’s articles of association, and section 32 of the CUO.

25.  At a meeting of the Board on 28 April 2009, an agreement between the plaintiff and the Credit Union League of Hong Kong (“CULHK”) whereby the plaintiff was to be appointed as a financial advisor (“CULHK Agreement”) was circulated.

26.  By then, it was clear that the plaintiff was intending to be a candidate (if not the sole candidate) for the post which was to be created whereby he would perform substantially the same role as he did as the Chief Financial Supervisor, save that he would be financially rewarded.

27.  On 22 May 2009, an AGM was held whereby a new board was elected by the defendant’s members.  The plaintiff stepped down as President but, crucially, remained a director.

28.  At a crucial board meeting on 27 May 2009: –

(1)  The plaintiff was recommended as the financial advisor to be appointed and the plaintiff expressed his interest in being so appointed.

(2)  Recognising that the plaintiff had to resign in order to take up the position, the plaintiff nonetheless stressed that he would only resign after the Engagement Agreement had been signed.

(3)  He further expressed concern about the uncertainties which would be generated by the recruitment advertisement to be uploaded online.  Ultimately, there was a consensus that the recruitment exercise would only be a formality and that the plaintiff would be appointed.

(4)  Although the Engagement Agreement is dated 4 June 2009, it was in fact signed at the meeting on 27 May 2009 by the plaintiff on the one hand and Mrs Wong Lee Shuk Yee (“Mrs Wong”), the defendant’s newly elected President on the other.

29.  In order to take up the Engagement Agreement, the plaintiff resigned from his post as director purportedly effective on 31 May 2009 and caused the Engagement Agreement to be dated 4 June 2009.

30.  Further, the plaintiff ensured that the recruitment exercise would be no more than a formality to give the plaintiff’s appointment the appearance of legitimacy.  Indeed, it is plain that the purported recruitment advertisement, which was online for no more than a few days and sparse in details, could not have realistically attracted any qualified or interested applicants.

31.  Given the very short time for which the recruitment was advertised, only members of the Board, such as the plaintiff, would have inside knowledge of the existence of the post at all and there can be no doubt that this opportunity only became available to the plaintiff due to his position.

32.  I agree that, applying the above principles to the present case, it is plain from the undisputed facts and from the evidence adduced at trial that the plaintiff had acted in breach of his fiduciary duties.  He also failed to give adequate disclosure or secure the necessary consent to absolve him from liability to account for all profits made under the Engagement Agreement.

33.  The plaintiff primarily relies on two grounds to address his clear breach of fiduciary duties.

34.  First, he submits that there was full disclosure to the Board of his interest.  Notwithstanding disclosure to the Board, I agree it is plain that no adequate disclosure was made or informed consent obtained in order to absolve the plaintiff from liability.

(1)  Unlike a private company, there is no article or clause in the Bylaws which expressly provides that a transaction by the company for which a director is interested shall not be avoided or that the director shall not be liable to account for profits so long as proper disclosure is made to the board.

(2)  In other words, only full disclosure to and the informed consent of the defendant’s members in general meeting can relieve the plaintiff of liability for breach of fiduciary duties.  There is no suggestion that, for example, the plaintiff’s conflict of interest as a candidate for the financial advisor position was fully disclosed or discussed at the AGM on 22 May 2009 or at any other general meeting called for this purpose.

(3)  By the very nature of the Engagement Agreement, the plaintiff must have been in a position of actual conflict of interest.  The plaintiff as a pre-ordained (or at least potential) candidate had a personal interest in ensuring that the terms of remuneration were drafted as generously as possible while the defendant’s interests were the exact opposite.

(4)  For example, the percentage of bonus payable for the same top 3 brackets of performance are fixed at 25%, 20% and 15%, respectively, in the CULHK Agreement, but increased to 30%, 25% and 20% in the Engagement Agreement, giving the plaintiff much higher returns.

(5)  The defendant has adduced expert evidence (which is not contradicted) showing that the level of remuneration payable under the Engagement Agreement is exceptionally high, even when compared with licensed professional investment advisory firms.

(6)  Given the plaintiff’s clear conflict of interest and his continued presence on the Board when the terms of the Engagement Agreement were discussed, it is incumbent upon the plaintiff to prove that he specifically explained the implications of each and every term which could potentially be exploited to the plaintiff’s advantage to bring home his personal interest in the matter.  The evidence adduced at trial demonstrates that he falls far short of this burden.

35.  Secondly, the plaintiff submits that his fiduciary duties ceased upon his resignation on 31 May 2009.

(1)  As demonstrated by the authorities cited above, a director who resigns in order to take up an opportunity made available to him during his term cannot in so doing escape liability for his breach of fiduciary duties.

(2)  A fortiori, the plaintiff’s resignation cannot avail where he engineered and practically secured the Engagement Agreement during his term and while he was still an influential member of the Board, and then caused the formalities to be effected immediately thereafter.

36.  Once it is found that the Engagement Agreement was entered into in breach of the plaintiff’s fiduciary duties without the defendant’s informed consent, the authorities are clear that the defendant is invariably entitled to an account of all profits which the plaintiff became entitled to thereunder regardless of his bona fides and despite the fact that the defendant did make gains on investments.

B1.  Execution of the Engagement Agreement

37.  In opening, the plaintiff accepted that the conduct of the parties, including the date on which the Engagement Agreement was physically signed, was relevant to the question of when the contract was formed.  In this regard, the transcripts indisputably reveal and the plaintiff in cross-examination accepted that he and the President for the defendant signed the Engagement Agreement at the board meeting on 27 May 2009.

38.  Regardless of how the Engagement Agreement was physically compiled, the conduct of the parties clearly shows that the plaintiff and the Board intended for the steps taken on 27 May 2009 to constitute a binding agreement between the defendant and the plaintiff.  The defendant’s President at the time expressly invited the plaintiff to accept the engagement and the plaintiff unequivocally accepted.  Neither party could unilaterally resile from the Engagement Agreement after 27 May 2009.  This was the whole reason behind the plaintiff insisting on signing the Engagement Agreement before tendering his resignation – so that he could be assured of his appointment first.  Otherwise, there is no reason why the parties could not simply wait until 4 June 2009 to execute the Engagement Agreement.

39.  In any event, ultimately, the plaintiff cannot escape liability for breach of fiduciary duties simply by resigning even if it could be argued that the Engagement Agreement only became binding after his resignation (see the authorities cited in paragraph 20 above).

B2.  “Pleading point”

40.  Counsel for the plaintiff, Mr Patrick Szeto, argues that the plaintiff’s failure to disclose the relevant circumstances to, and obtain the consent of, the members in general meeting was not pleaded by the defendant and thus the plaintiff is not required or able to plead in reply that he did make such disclosure and obtain such consent.  I agree with Mr Chan Chi Hung, SC (and with him Mr Derek Chan), counsel for the defendant, that this is to put the cart before the horse and plainly untenable for the reasons set out below.

41.  The defendant’s case on breach of fiduciary duty does not and needs not rely on the absence of disclosure or consent whether to the board or to the general meeting.

42.  The plaintiff’s breach of duty and liability to account arises once it is shown that the plaintiff (i) did not act in the defendant’s best interests, (ii) placed himself in a position of actual or potential conflict of interest and/or (iii) used his position, knowledge or opportunity resulting from it to his own or a third party’s advantage.  I agree that these breaches of duty are all plainly established on the evidence as revealed by the transcripts and through the plaintiff’s answers in cross-examination.

43.  It is then for the plaintiff to raise a defence (ie to plead such in the Amended Reply and Defence to Counterclaim) to exonerate himself.  One such possible defence is the fully informed consent of the principal/beneficiary, which in the present case can only be the members in general meeting (not the board).  Disclosure alone is not sufficient.  There must be informed consent after proper disclosure is made.

44.  In particular, the authorities make it clear that the burden is on the fiduciary to positively show full disclosure and consent [see: Hurstanger Ltd v Wilson(Supra) at [35] per Tuckey LJ].

45.  In Menno Leendert Vos (Supra), To J therefore remarked at paragraph 111 that neither of the fiduciaries sought to rely on the principle that the company in general meeting can confirm the relevant contract to absolve them from liability.  It is not suggested, for example, that the company needs to plead or prove the negative (i.e. that the informed consent of the members in general meeting was not obtained).

46.  As the plaintiff failed to plead or prove sufficient disclosure to and consent by the members, there can be no answer to absolve the plaintiff of liability to account for his breach of fiduciary duties or to deny the defendant’s right to have the Engagement Agreement set aside.

47.  In short, there is nothing in the “pleading point” at all.

B3.  Article 37(iv) of the Bylaws

48.  At trial, the plaintiff sought to rely on Article 37(iv) of the Bylaws, which provides as follows: –

“ Every Director shall, before taking part in any business of the Board, be required to disclose any personal interest arising out of that business, and after considering such disclosure, it shall be for the Board of Directors to decide whether such Board member shall take part in the discussion and vote upon the item of business in which he has disclosed an interest.”

49.  First of all, it should be noted that the plaintiff has not in fact pleaded reliance upon Article 37(iv) of the Bylaws, or the purported construction of this Article which might lead to the result that the plaintiff’s disclosure to and consent by the Board (as opposed to the general meeting) is capable of absolving of his liability for placing himself in a position of conflict.

50.  The principles on the proper construction of the Bylaws (which are akin to the articles of association of a company) are the same as those on construing a contract.  As Lord Hoffmann observed in Att-Gen of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (PC), at paragraph 16: –

“...The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.” (emphasis supplied)

51.  As observed by the Court of Final Appeal in the passages recited in Practice Note 18/0/3 of the Hong Kong Civil Procedure 2016, pleadings are not a mere formality but a necessary discipline to ensure fairness between the parties.  If the proper construction of Article 37(iv) had been put in issue by the pleadings, the defendant would be entitled to address that issue by adducing evidence of the relevant context and factual matrix against which Article 37(iv) of the Bylaws should be construed.

52.  In any event, even if the plaintiff is permitted to rely on Article 37(iv), I agree it is plain that it cannot avail him for the reasons set out below.

53.  First, Article 37(iv) does not expressly displace the defendant’s right to set aside the transaction or seek an account of profits and therefore cannot be given such an extensive meaning.  This is contrasted with Regulation 86 of Table A, and the Article 72 discussed in Woolworths Ltd v Kelly (1991) 4 ACSR 431, at 433 per Kirby P, 449-451 per Mahoney JA where the provisions expressly prevents avoidance of the contract and the liability to account for profits.

54.  As Lord Hoffman observed in Att-Gen of Belize (Supra) at paragraph 17: –

“The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. ...”

55.  Given the absence of express provision displacing the strict rule in equity, I agree the inference must be that Article 37(iv) only regulates the procedure by which business of the Board should be carried out.  It is not effective to “contract out” of a director’s obligation to obtain the informed consent of the members under the general law.  It simply imposes an additional duty on the director to disclose his interest before the board can even resolve to put forward the transaction for the consent of the general meeting or to call a special general meeting to obtain its consent.

56.  There is simply no room to interpret, whether by implication or otherwise, Article 37(iv) to mean that contracts entered into after disclosure to the Board shall not be set aside or that the director shall not be liable to account.

57.  Secondly, even if it could be argued that disclosure to the Board is sufficient to exclude or modify the “no conflict” rule, it does not mean that the plaintiff is relieved from his other duties, including the duty to act in the defendant’s best interests.

58.  Where the strict “no conflict” rule is displaced, the plaintiff’s other duties do not disappear.  On the contrary, the court must scrutinise the transaction with great care and determine whether in carrying out the transaction the director truly has managed to avoid the temptation of putting his personal interests before the that of the company [see: Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald (No.2) [1995] BCC 1000, at 1015H-1017D per Deputy High Court Judge A G Steinfield QC].

59.  I agree that on the evidence adduced at trial, it is plain in the present case that the plaintiff failed to avoid this temptation.  Indeed, the plaintiff practically admitted as much during cross-examination.

(1)  The plaintiff accepted that when discussing the Engagement Agreement at meetings of the Board while he was still a director, he had an eye on applying for that post for himself and that his motivation was to earn a decent living upon retirement.  He also made it clear that he would no longer work for free (a stance which he leveraged to secure his own speedy appointment).

(2)  The plaintiff initially stressed that he needed to be appointed swiftly so that he could have the proper authority to carry out or advise on investments for the defendant.  Eventually, he had to accept that the Board could have immediately appointed him as a member of the investment committee and the “Chief Financial Supervisor” on an unpaid basis while the recruitment of a paid investment advisor was properly carried out.

(3)  The true picture is that the plaintiff was unwilling to help the defendant invest until his paid position was secured, in the context of the Board’s apparent desperation to recoup recent losses (which, incidentally, was sustained during the plaintiff’s tenure as Chief Financial Supervisor).

(4)  At the same time, the plaintiff encouraged (or at least allowed) the Board to conduct the recruitment exercise as a mere formality to ensure that no genuine contenders would compete with him for the post.  It is plain that the lack of competition only benefits the plaintiff and not the defendant.

(5)  While the plaintiff suggests that he has explained the onerous terms of the Engagement Agreement (such as the higher rate of bonuses compared with the CULHK Agreement) to the Board, the plaintiff was unable to identify any trace of these purported explanations in the documentary evidence (including the recordings, transcripts, and minutes of meetings).

(6)  Paragraph 8(e) of Mr Mak Lin Fung’s witness statement does not assist the plaintiff.  It is clear that paragraph 8(e) concerned only Mr Mak’s own understanding.  There is no evidence that this understanding is derived from the plaintiff’s specific explanation or disclosure and indeed Mr Mak could not know whether other directors also had this understanding.  The plaintiff simply failed to “bring home” the extent of his higher rate of returns and it is insufficient that Mr Mak subsequently had some impression or understanding of the plaintiff’s personal interest.

(7)  Indeed, the plaintiff said that he used the CULHK Agreement as a bargaining chip to show the Board that he had garnered some sort of “reputation” (to use his own words) of providing the relevant investment advisory services.  He was hopeful that the defendant would take the lead of CULHK to appoint him as an investment advisor. Such considerations are purely borne out of self-interest.

60.  In the result, even if the plaintiff manages to cross the considerable hurdles to show that (i) Article 37(iv) modified the general law such that disclosure and consent by the Board is sufficient to relieve the plaintiff of his conflict of interest, (ii) the plaintiff did make disclosure to the Board and (iii) the plaintiff’s disclosure was somehow sufficient in nature and extent, the plaintiff is nonetheless liable for breach of his duty to act in the best interests of the Company.  This duty, as demonstrated in the Neptune case (Ibid), is not relieved by disclosure pursuant to a provision such as Regulation 86 of Table A, even if properly worded.

B4.  Defence or counterclaim?

61.  The suggestion by the plaintiff that the defendant’s case on breach of fiduciary duties only operates as a counterclaim is entirely misconceived.

62.  For the HK$18,906.92 already paid to and retained by the plaintiff, the defendant naturally is entitled to an account of that sum.

63.  For any sums which may be payable under the Engagement Agreement but are still unpaid, I agree that the court can approach it in two conceptually different routes to arrive at the same end result, ie that the plaintiff fails in his claim to recover the same.

(1)  First, it can be analysed that the plaintiff’s entitlement (a chose in action) is a “profit” which the plaintiff is liable to account to the defendant and which the plaintiff holds on the defendant’s behalf as constructive trustee.  The net result is that whatever fees might be payable under the Engagement Agreement is only payable to itself and the plaintiff never had any basis to recover the same from the defendant nor to commence an action for it.

(2)  Secondly, and fundamentally, the defendant is entitled to avoid or require to be set aside the Engagement Agreement.  In the result, any sums payable thereunder would not be recoverable.  This was considered in Woolworths Ltd v Kelly (Supra), where the company sought to avoid making payments to a director under a pension scheme entered into between the director and the company: see 436-437 per Kirby P and 452-453 per Mahoney JA.

64.  In the circumstances, I am of the view that the breach of fiduciary duties ground alone is sufficient to dispose of and dismiss the plaintiff’s claim for payment under the Engagement Agreement.  By the same token, the defendant’s counterclaim for relief in respect of the $18,906.92 1^st quarter bonus which the plaintiff already received must succeed.

C.  ILLEGALITY

65.  Section 114(1) of the Securities and Futures Ordinance, Cap 571 (“SFO”) provides that no person shall carry on a business in a regulated activity or hold himself out as carrying on a business in a regulated activity unless properly licensed or authorised.

66.  Section 114(3) of the SFO provides that no person shall perform any regulated function in relation to a regulated activity carried on as a business or hold himself out as performing such function.

67.  A regulated activity includes Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) (“regulated activities”): Schedule 5 of the SFO.

68.  There is no dispute that the plaintiff is not properly licensed to carry on regulated activities.

69.  However, the plaintiff argues that the illegality does not as a matter of statutory construction provide a basis for avoiding or rescinding the Engagement Agreement.

70.  For the reasons set out below, I agree that the plaintiff’s contention is not sound as a matter of law and indisputable evidence.

C1.  Statutory interpretation

71.  Where a statute is silent as to the civil consequences but penalises the performance or making of a contract, the courts consider whether the particular statute, on its true construction, is intended to avoid contracts of the class to which the particular contract belongs or whether it merely prohibits the doing of some particular act.

72.  In the cases of Richardson Greenshields of Canada (Pacific) Ltd v Chow Paul [1989] 1 HKC 261, SouthChina Securities Ltd v Lam Kwen Yuen [2013] 1 HKC 295, Tullet & Tokyo International Securities Co Ltd v APC Securities Co Ltd [2001] 2 HKC 713 and AA Chen (Asia Pacific) Consultants Ltd v Khoo EE Liam [2012] 6 HKC 486, the court was dealing with non-compliance with the now repealed Securities Ordinance, Cap 333 (“SO”).  The conclusions drawn by the court on whether or not civil consequences should flow from non-compliance with those particular provisions were decided in light of the previous legislative framework and must be approached with caution.

73.  In particular, each case was heavily influenced by the notion that where a statute provided for civil consequences in regard to some breaches, it would tend to suggest that the legislature did not intend civil consequences in regard to breaches for which no such consequences were expressly provided.

74.  It is notable that under the new regulatory regime in the SFO, there is in fact express provision preserving the validity of transactions implicated in a contravention of the Ordinance (see sections 280 and 304 of the SFO to similar effect).

75.  For example, section 304 of the SFO expressly provides that: –

“A transaction is not void or voidable by reason only that a contravention of any of the provisions of Divisions 2 to 4 has taken place in relation to or as a result of it.”

76.  Section 304 of the SFO concerns Part XIV on “Offences Relating to Dealings in Securities and Futures Contracts”.  Divisions 2 to 4 (sections 291-302) deal with the offences of insider dealing, market misconduct, and other offences involving fraud or deception.

77.  No provision expressly preserving the validity of transactions implicated in illegality existed in the SO.  More importantly, despite the introduction of such express preservation for transactions implicated in certain offences in the SFO, the legislature did not see fit to do the same in respect of contracts entered into in contravention of licensing requirements under section 114.  I agree this suggests that a contract which involves prohibitions under the SFO apart from those specified in sections 280 and 304 is void or voidable.

78.  At the very least, this demonstrates that the absence of express provision in the SFO that the contract is void or voidable due to a contravention of section 114 is at best neutral and does not tend to suggest that no civil consequences should flow from non-compliance.  Therefore, the policy considerations as discussed below should apply.

79.  Even where a statute expressly provides that breach of its prohibition does not render a contract void (such as section 304 of the SFO) or unenforceable, the court may nevertheless refuse to enforce the contract because this would be assisting in the furtherance of something that is illegal, particularly if no third parties are involved in the impugned transaction [see: Chitty on Contracts (32^nd edition), paragraph 16-155; Chase Manhattan Equities Ltd v Goodman [1991] BCLC 897, at 931d-934h per Knox J].

80.  Where the object of the statute is the protection of the public from possible injury or fraud, or is the promotion of some object of public policy, the inference is that contracts made in contraventions of its provisions are prohibited [see: Chitty on Contracts, paragraph 16-157].

81.  Where a statute prohibits the doing of work otherwise than under a licence, a contract under which unlicensed work is carried out will generally be unenforceable [see: Chitty on Contracts, paragraph 16-164].

82.  DHCJ Mimmie Chan (as she then was) made the following observations in AA Chen(Supra)at paragraphs 39 to 41: –

“39. Richardson Greenshields is distinguishable from the present case. In the present case, the plaintiff whose business should have been registered but which is not is suing for fees for the very services which are regulated by sections 49 and 50 of the Ordinance. There are no third party interests involved, since the defendant is not seeking to avoid trades entered into by an unregistered adviser or dealer on the customer’s behalf.

40. There is much attraction in Mr Chan SC’s argument that if the law does not allow an unregistered investment adviser to give investment advice, the law should not permit the unregistered adviser to sue for his fees.

41. Nevertheless, the courts emphasized in the cases referred to in paragraph 38 above that “it is not lightly to be inferred that the legislature intended sanctions beyond the penalties it laid down” (as per Bokhary J, as he then was, in Richardson Greenshields of Canada (Pacific) Ltd v Paul Chow [1989] 1 HKC 261, at 269). Section 76 and section 143 of the Ordinance made express provisions for civil consequences of breach of the statutory provisions, whereas other provisions such as sections 20, 48, 49 and 50 only provided for criminal sanctions and penalties, and were silent on the civil consequences. The fact that a statute expressly provides for civil consequences in regard to some breaches tends to suggest that the Legislature did not intend civil consequences in regard to breaches for which no such consequences are expressly provided. This is the conclusion to which I have come, albeit with some reluctance.” (emphasis supplied)

83.  It is clear that the learned Judge in AA Chen considered that as a matter of logic and policy there is much to be said in favour not allowing an unlicensed advisor from recovering his fees.  It would give effect to the sound public policy in discouraging unregulated persons from carrying on regulated activities which could lead to great losses to unsuspecting members of the public or even public institutions such as the defendant.

84.  While the defendant has fortuitously not suffered losses over the short period of the plaintiff’s engagement, the defendant undertook a tremendous risk in entering into a reward based incentive scheme with the plaintiff whereby the plaintiff’s personal interest in generating higher gains effectively encouraged the plaintiff to engage in speculative and risky investments at no personal risk or expense.

85.  As pointed out above, the primary reason for which the learned Judge in AA Chen eventually concluded that the illegality did not lead to non-recoverability of fees is no longer applicable (or at least very much watered down) in light of the new legislative regime.

86.  In the premises, I agree that to give effect to the policy behind prohibiting regulated activities, offending persons ought not to be entitled to recover their fees.  No third party’s rights will be affected and no investments will be unravelled.

87.  In short, the existence of sections 280 and 304 of the SFO expressly preserving the validity of transactions made in contravention of certain other provisions in the SFO negates the effect of the absence of express provision to avoid contracts made in contravention of section 114 of the SFO.

88.  The court is then left with the task of construing section 114 of the SFO on the basis of first principles and policy.  The answer then becomes clear.  The court ought not to enforce or give effect to a contract which involves the unlicensed carrying out of activities prohibited by statute in circumstances where the avoidance of the contract will not affect the rights of any innocent third parties.

89.  To give effect to such a contract would be to encourage unlicensed persons to take the risk of potential criminal or regulatory consequences in carrying out regulated activities, safe in the knowledge that they will at least be able to recover and retain any profits made.  It is plain that the legislative intent cannot be to encourage unlicensed persons to take a calculated risk for profit.

90.  There are no real countervailing considerations of law or policy which point the other way.  No third party rights will be affected.  It must further be borne in mind that ignorance of the law is no excuse.

91.  In the premises, I agree that the court ought to avoid or refuse to enforce the Engagement Agreement and the plaintiff’s claim must fail on the ground of illegality as well.

D.  ULTRA VIRES

92.  The powers of a corporation created by statute are confined to those given expressly or by reasonable inference by the statute concerned.  If the subject-matter of a contract made by such a corporation is outside the scope of its constitution as defined by the statute, the contract is ultra vires and void [see: Chitty on Contracts, paragraph 10-005].

93.  Section 10 of the CUO sets out the powers available to the defendant: –

“For the purpose of carrying out its objects, a credit union may- ...

(b)  invest in any stock, debenture stock, funds or securities in which a trustee may invest by virtue of the Trustee Ordinance (Cap 29); ... ”

94.  The categories of investments which a credit union is empowered to enter into are specifically enumerated and should be construed as exhaustive.  If the types of investments which a credit union is empowered to make is limitless, it is difficult to see the legislative purpose of specifically naming discrete categories.

95.  It follows that the defendant has no power to: –

(1)  enter into the Engagement Agreement (which expressly includes rendering investment advice on foreign currencies: see Clause 1.1);

(2)  to receive or act upon advice on investments beyond the scope of section 10 (such as foreign currencies and gold); or

(3)  to profit from or pay remuneration in respect of profits generated by investments made beyond the scope of its powers.

96.  In the circumstances, I agree that the Engagement Agreement is ultra vires the defendant’s powers and is therefore void and unenforceable.

E.  MISREPRESENTATION

97.  A statement of intention or as to the future may carry the implication that the party making it does not know of facts that will make it impossible to carry out the intention, and whether a particular statement carries with it a particular implication depends on the particular context [see: Chitty on Contracts, paragraphs 7-013 and 7-014].

98.  Clause 1.6 of the Engagement Agreement provides that: –

“The Adviser shall comply with all applicable laws and regulations relating to the provision of the Services...”

99.  In the present context, this necessarily carries with it the implication that the plaintiff is capable of complying with all laws and regulations relating to the provision of the Services.  However, given that the plaintiff was not licensed to carry on the business of regulated activities, this representation must be false.

100.  While the plaintiff suggests that he did not know about the need for licensing, he was reckless or at least negligent in not carrying out the necessary investigations before engaging in the business providing investment advice on regulated financial products.

101.  It is reasonable to infer that the defendant would not have entered into the Engagement Agreement if it had known that the plaintiff could not lawfully provide the services he contracted to carry out and thus relied upon the plaintiff’s misrepresentation of his ability to do so.

102.  In the circumstances, I agree that the defendant is further entitled to rescind the Engagement Agreement and/or recover sums payable thereunder as a result of the defendant’s fraudulent or negligent misrepresentation.

F.  UNCONSCIONABLE CONTRACTS ORDINANCE

103.  Section 5 of the Unconscionable Contracts Ordinance, Cap 458 (“UCO”) provides: –

“(1) If, with respect to a contract for the sale of goods or supply of services in which one of the parties deals as consumer, the court finds the contract or any part of the contract to have been unconscionable in the circumstances relating to the contract at the time it was made, the court may-

(a)  refuse to enforce the contract;

(b)  enforce the remainder of the contract without the unconscionable part;

(c)  limit the application of, or revise or alter, any unconscionable part so as to avoid any unconscionable result.

(2)  It is for the person claiming that a contract or part of a contract is unconscionable to prove that it is.”

104.  Section 6 of the UCO provides the matters which are considered by the court: –

“(1)  In determining whether a contract or part of a contract was unconscionable in the circumstances relating to the contract at the time it was made, the court may have regard to (among other things)-

(a)  the relative strengths of the bargaining positions of the consumer and the other party;

(b)  whether, as a result of conduct engaged in by the other party, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;

(c)  whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;

(d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the other party or a person acting on behalf of the other party in relation to the supply or possible supply of the goods or services; and

(e)  the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party.

(2)  In determining whether a contract or part of a contract was unconscionable in the circumstances relating to the contract at the time it was made-

(a)  the court shall not have regard to any unconscionability arising from circumstances that were not reasonably foreseeable at the time the contract was made; and

(b)  the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this Ordinance.

(3)  In considering the exercise of its powers under section 5 to grant relief in respect of a contract or part of a contract found to be unconscionable, the court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.”

105.  Section 3 of the UCO provides: –

“(1)  A party to a contract "deals as consumer" in relation to another party if-

(a)  he neither makes the contract in the course of a business nor holds himself out as doing so;

(b)  the other party does make the contract in the course of a business; and

(c)  the goods passing or services provided under or in pursuance of the contract are of a type ordinarily supplied or provided for private use, consumption or benefit.

(2)  Notwithstanding subsection (1), on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as consumer.

(3)  It is for the person claiming that a party does not deal as consumer to prove that he does not.”

106.  There is no suggestion that the defendant entered into the Engagement Agreement in the course of business, while it is provided in the Engagement Agreement that the plaintiff carries on the business of providing investment advisory services.  Investment advisory services are ordinarily supplied or provided for private benefit.  In the circumstances, the UCO prima facie applies.

107.  I agree that the following factors enable this court to find that the Engagement Agreement (or at least the bonus payable thereunder) is unconscionable, and thus unenforceable: –

(1)  The incentive scheme in the Engagement Agreement is technical and complex.  It is clear from the board meeting on 28 April 2009 that the incentive scheme and the magnitude of fees potentially payable were not easily understood by the board.

(2)  When the Engagement Agreement was tabled and discussed, the plaintiff was still a member of the Board and had tremendous influence over it.

(3)  The plaintiff caused the recruitment exercise to be carried out as a mere formality and essentially precluded any genuine competition for the post.

G.  QUANTUM

108.  For the sake of completeness, I shall briefly consider the question of quantum should the defendant be held liable to the plaintiff’s claims.

109.  It is trite that the burden is for the plaintiff to prove both the fact and amount of damage before he can recover substantial damages, failing which only nominal damages can be awarded [see:McGregor on Damages (19^th edition), paragraph 50-001].

110.  By order dated 3 January 2014, the court granted leave to the parties to adduce expert evidence on quantum issues and market practice.

111.  The Expert Report by Mr Francis Wong (the defendant’s expert) essentially involved an audit of the investments held by the defendant during the relevant period and sets out investment gains calculated on various scenarios.

112.  It is insufficient for the plaintiff to point to the “Incentive Scheme” sheets which were unaudited and have limited evidential value (if any).  This is particularly so where it is clear from the Expert Report that the figures put forward by the plaintiff cannot be reconciled with the primary documents showing the performance of investments made.  Even on the plaintiff’s apparent method of calculation, the primary evidence shows that he only made a net return of HK$16,316,865 (as opposed to HK$33,242,287) and is entitled to only bonus in the sum HK$4,714,701 (as opposed to HK$9,783,618).

113.  The plaintiff admitted in the witness box that he did not prepare or scrutinise the figures recorded in the “Incentive Scheme” and could not justify them.

114.  The plaintiff’s belated suggestion that he could not verify the figures because the relevant documents are not in his possession rings hollow.  All of the defendant’s bank statements for the relevant period had been disclosed by the defendant by 15 July 2014.  No application for specific discovery had been made by the plaintiff’s legal representatives.  Indeed, there was never any suggestion that the defendant withheld discovery of the relevant bank documents.

115.  In the circumstances, I agree that the plaintiff has plainly failed to discharge the burden of proving his contended level of remuneration set out in the “Incentive Scheme”.

116.  Based on the figures and calculations in the defendant’s expert report, it is then essentially a decision between Scenarios 1A, 1B, 2A, 2B and 2D.

117.  As between Scenarios 1A and 1B on the one hand and Scenarios 2A, 2B and 2D on the other, the principal difference between the plaintiff and the defendant is on the proper construction of the word “Capital” as defined under the Engagement Agreement.

118.  Under the Engagement Agreement, “Capital” is defined at Recital A as: – (i) “...investment advice on those investments utilizing the capital (the ‘Capital’)” and (ii) “of and approved by CUECU from time to time”.

119.  Under Scenarios 1A and 1B, the initial capital (over HK$200 million) is calculated by including all investments held by the defendant at the time the Engagement Agreement commenced, regardless of whether the plaintiff gave investment advice in respect of it and whether the defendant accepted and approved such investments as “Capital”.  In the result, the plaintiff “takes credit” for gains from investments which already existed before the plaintiff’s tenure under the Engagement Agreement despite there being no evidence that his advice was rendered or accepted by the defendant in respect of those investments during the term of the Engagement Agreement. The defendant submits that this approach is inherently flawed and cannot be the true construction of the Engagement Agreement.

120.  On the other hand, the plaintiff submits that Scenarios 2A to 2D are inappropriate as they had wrongfully proceeded on a performance-based analysis, when the Engagement Agreement only required comparison of the opening and closing balance of the Capital.  The assumed requirement under Scenarios 2A to 2D was an unpermitted gloss on the Engagement Agreement.  The entitlement to Bonus was tied only with the tendering of Services but not upon the defendant acting on the strength of the Services.  The Bonus was return-based as opposed to performance-based.

121.  The defendant submits that “Capital” should mean “funds of the Defendant that had actually been used to invest pursuant to the Engagement Agreement”.  The plaintiff submits that “Capital” should be given its ordinary and usual meaning, ie, “funds of the Defendant that could be made available for investment”.

122.  In this regard, I agree that the construction as alluded to by the plaintiff is correct because: –

(1)  Under Recital Aof the Engagement Agreement, “Capital” was defined before the reference to the words “of and approved by CUECU from time to time”.  In considering the meaning of “Capital”, the subsequent words are not indicative.

(2)  More importantly, Clause 1.2 of the Engagement Agreement provides that “Once the advices from the Adviser are adopted and subscription and/or purchase of the proposed investments utilizing the Capital (the “Investment”) are made, ...” [emphasis supplied].

(3)  The suggested meaning of “Capital” as submitted by the defendant was in fact specifically defined in the Engagement Agreement as the “Investment”, and henceforth, “Capital”, which has already been defined earlier, can only carry the meaning as contended for by the plaintiff.  It is against logic that terms defined differently would have the same meaning in the same document.  I agree it is the plain reading of the Engagement Agreement that the calculation of Bonus was with reference solely to Capital as opposed to Investment.  It is not open for the defendant to construe “Capital” as “Investment” and seek to calculate Bonus with reference to Investment.  This construction is plainly contrary to the true and proper construction of the word “Capital” in the Engagement Agreement.

123.  It follows therefore that Scenarios 2A, 2B and 2D are not to be adopted as the proper bases for calculating damages.

124.  As between Scenarios 1A and 1B, under Clause 2.2, the plaintiff’s accumulated bonuses for each quarter are split in two halves.  50% would be payable quarterly within the first 7 days for the following quarter.  As for the remaining 50%, Clause 2.2(b) provides: –

“All unpaid bonus cumulated in the first 3 quarters shall only be payable if the capital value as at the end date of this Agreement exceeds the applicable Threshold.” [emphasis supplied]

125.  The relevant “Threshold” is defined in Clause 2.2 as the higher figure between 100% of the Capital or the “high-on-high watermark”, which essentially means the highest end-of-quarter balance throughout the year (unless all the preceding quarters were loss-making, in which case the initial capital would constitute the Threshold).  In other words, if the capital value as at the end of the Engagement Agreement is equal to or lower than the highest quarterly balance, then the plaintiff would not be entitled to receive the remaining 50% bonus.

126.  In the present case, the plaintiff has not attempted to adduce any evidence about the capital value of the Investment as at 31 May 2010 and thus can hardly establish that the capital value as at the end date exceeds the Threshold.

127.  For the reasons set out above, and taking into account the methods of calculation set out in the Expert Report, I am of the view that Scenario 1B represents the most accurate reflection of the incentive scheme under the Engagement Agreement.  On this basis, the total performance bonus payable to the plaintiff is HK$2,357,351.

128.  Finally, for completeness, any award of damages should give credit for the HK$18,906.92 which the plaintiff has already received, by subtracting this figure from the amount payable under the appropriate scenario.

H.  DISPOSITION

129.  Failing on liability, I dismiss the plaintiff’s claim against the defendant in this action.

130.  Further, I give judgment in favour of the defendant against the plaintiff on the defendant’s counterclaim as follows: –

(1)  An order that the Engagement Agreement be set aside;

(2)  Repayment by the plaintiff of the sum of HK$18,906.92;

(3)  An account of the profits made by the plaintiff under the Engagement Agreement;

(4)  A declaration that the plaintiff holds all profits under the Engagement Agreement including the sum of HK$18,906.92 on constructive trust for the defendant; and

(5)  The plaintiff do pay to the defendant interest on the sums found due at the judgment rate from the date of the counterclaim (18 October 2010) until payment in full.

131.  I see no reason why costs should not follow the event.  Accordingly, I order that the plaintiff do pay to the defendant the costs of this action and the defendant’s counterclaim, such costs to be taxed if not agreed.  The plaintiff’s own costs be taxed in accordance with the Legal Aid Regulations.

132.  The above orders as to interest and costs are nisi and shall become absolute in the absence of any application within 14 days to vary the same.

133.  Lastly, I thank counsel on both sides for their helpful assistance in this matter.