FRIENDS FOOD (HONG KONG) COMPANY LTD v. FRIENDS FROZEN FOOD COMPANY LTD AND ANOTHER

DCCJ 1670/2022

[2026] HKDC 659

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1670 OF 2022

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BETWEEN

(By Original Action)

AND BETWEEN

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JUDGMENT

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A. INTRODUCTION

1.  This is a dispute arising from a written agreement dated 31 August 2021 (“the Contract”) between Friends Food (Hong Kong) Company Limited (“F Food HK”), as purchaser on the one part, and Yeung Cho Yi (楊祖兒) (“Yeung”) and Friends Frozen Food Company Limited (“F Frozen Food”) on the other, as seller, for the sale or transfer of the frozen food wholesale business operated under F Frozen Food (“the Business”).

2.  In October 2020, Yeung became the sole shareholder and director of F Frozen Food. In May 2021, Yeung listed the Business for sale with Ko Pak Business, a business brokerage. Mr Sam Shing (盛爵深) (“Shing”) was, at the time, the agent involved in the sale of the Business.

3.  In July 2021, Mr Mak Wai Cheung (麥偉章) (“Mak”) and his partner, Mr Cheung Hoo Kiu Kenny (張皓喬) (“Cheung”), noticed the listing and approached Shing. They subsequently met Yeung at F Frozen Food’s workshop. After discussions, the parties (ie, F Frozen Food, Yeung, and Cheung) entered into a provisional agreement for the sale of the Business on 20 July 2021 (“Provisional Agreement”).

4.  On 3 August 2021, Mak and Cheung then incorporated F Food HK for the purpose of taking over the Business. A formal contract (ie, the Contract) was then executed on 31 August 2021.

5.  On 1 September 2021, Mak and F Food HK took over the Business and continued to operate the frozen food wholesale business at the then existing workshops of F Frozen Food.

6.  Pursuant to the terms of the Contract, Mak paid Yeung a total sum of $1,050,000 as a stage payment. On 2 October 2021, Mak paid Yeung a further $200,000. Although there is a dispute as to the nature of this further payment, it is common ground that a total of $1,250,000 was paid by Mak to Yeung in connection with the sale/transfer of the Business.

7.  In this action, F Food HK (as the plaintiff by original action) claims:

(a) In reliance on the fraudulent representation of Yeung, F Food HK entered into the Contract, F Food HK is therefore entitled to and seeks rescission of the same and damages arising therefrom,

(b) Yeung and F Frozen Food, who shall hereinafter be collectively referred to as “the Defendants”, were in breach of the Contract. As a result, F Food HK has suffered loss and damage,

(c) Damages and an account for profit for Yeung’s breach of fiduciary duty, and

(d) The return of the further payment of $200,000 paid under the request of Yeung for urgent financial assistance.

8.  On the other hand, the Defendants counterclaim against both Mak and F Food HK for the outstanding contract sum of $250,000.

9.  This case came on trial on 15 September 2025, with 6 days reserved.

10.  At the hearing, F Food HK and Mak were represented by Mr Ernest Koo (“Mr Koo”) and Mr Rex Yam of counsel, instructed by Messrs Simon C W Yung and Co., whereas the Defendants were represented by Ms Claris Kwong (“Ms Kwong”) of counsel under the instruction of Messrs Tong & Tsoi.

B. THE CASE OF F FOOD HK AND MAK

11.  F Food HK’s claims are founded on (1) fraudulent misrepresentation, (2) breach of contract, and (3) tort of misappropriation and conversion (of F Food HK’s frozen foods and money).

B1. Fraudulent misrepresentation

12.  For misrepresentation, F Food HK asserts that:

(1) During the negotiations and before the execution of the Contract on 31 August 2021, in order to induce Mak and Cheung to purchase and take over the Business, on more than one occasion, Yeung represented, assured and warranted to them that, upon selling and transferring the Business to the purchaser, the Defendants shall pass over to the purchaser the whole Business, including the customer and supplier base, and thereafter they will not do or involve in any similar business as a supplier or wholesaler of frozen food (“Representations”).

(2) Yeung, being the sole director of F Frozen Food, had at the time actual, apparent and/or ostensible authority to act for F Frozen Food in relation to all matters concerning the sale and transfer of the Business.

(3) The Representations were intended by Yeung and/or F Frozen Food to be relied upon by Mak and Cheung.

(4) Induced by and acting in reliance on the Representations, Cheung (acting for F Food HK) signed the Contract with the Defendants on 31 August 2021, whereby F Food HK agreed to purchase and take over the Business as of 1 September 2021 at a price of $1,500,000.

(5) Further, in reliance on the Representations, Mak and Cheung (acting for F Food HK) also agreed to purchase the Business’s stock-in-trade for an additional sum of $150,000.

(6) However, the Representations were demonstrably false, and at the material times the Defendants not only knew they were false, but also had no intention of honouring the commitments.

(7) But for the Representations, F Food HK would not have agreed to purchase and take over the Business by entering the Contract.

(8) While the parties were still in negotiations (ie before the Contract), Yeung, in parallel, set up a new company, Goodsview Trading Limited (昊璟貿易有限公司) (“Goodsview” or “昊璟”), with an intention to, and subsequently did, continue to operate a frozen food wholesale business. Upon commencement, Goodsview began dealing with the then-existing customers and suppliers of the Business, in direct competition with F Food HK.

(9) Furthermore, Yeung dishonestly and for his own benefit procured some of the Business’s staff to quit and join Goodsview.

B2. Breach of contract

13.  As to its breach of contract claim, F Food HK asserts that:

(1) The Contract contains, inter alia, the following terms:

(a) The Defendants shall transfer to F Food HK (i) the existing workshops at Room 1717 and Room 2801 of Well Fung Industrial Center, No 68 Ta Chuen Ping Street, Kwai Chung, Hong Kong (hereinafter be referred to as Workshop 1717 and Workshop 2801 respectively); (ii) the Food Factory Licence No 2991804607 (“Licence”) issued by the Food Hygiene and Environmental Department (“FHED”) to F Frozen Food in respect of Workshop 1717; (iii) all the business in operation and under negotiation, all the customers and suppliers of the Business; and (iv) all money and/or business producing tools and machines, one rented parking space, three cold rooms, three cutting meat machines, one bone chopping machine and one sleet beef mixer machine.

(b) The Defendants shall assist F Food HK in retaining all existing staff to continue operating the Business for F Food HK.

(c) The Defendants shall assist F Food HK in retaining existing transportation contractors for the operation of the Business.

(d) Within 84 months after the transfer of the Business, the Defendants shall not operate, or assist others to operate, in any manner or under any name whatsoever, a business as a wholesaler of frozen food, save for cooperating with and/or assisting F Food HK.

(e) For the first month after the transfer of the Business, the Defendants shall, in accordance with the existing work procedures, assist F Food HK and provide guidance to enable F Food HK to take over and continue with the operation of the Business.

(f) By implication, in performing their duties to assist F Food HK under the Contract, the Defendants owe F Food HK a fiduciary duty and a duty of good faith and fidelity.

(2) In compliance with the terms of the Provisional Agreement and the Contract, Mak has paid the Defendants a total sum of $1,050,000, representing 70% of the contract price. The further payment of $200,000 to Yeung on 2 October 2021 was made only at the request of Yeung for urgent financial assistance. At the time, neither F Food HK nor Mak had any contractual duty to do so as the Licence had not been transferred to F Food HK.

(3) In breach of contract and/or their fiduciary duties, F Frozen Food and Yeung:

(a) dishonestly, and for Yeung’s own benefit in his continuing frozen food wholesale business under Goodsview, failed and/or refused to supply or disclose to F Food HK with a full list or all the particulars of the customers and suppliers of the Business.

(b) dishonestly, and for his own benefit, continued printing on the invoices issued to the customers of the Business the name of F Frozen Food and concealed from the customers the fact that the Business had been sold and transferred to F Food HK.

(c) dishonestly, and for his own benefit, failed and/or refused to inform and notify all the customers and suppliers of the Business that the Business had been sold and transferred to F Food HK.

(d) dishonestly misappropriated various payments made by the customers in settlement for the goods supplied by F Food HK after 1 September 2021.

(e) dishonestly, and for his own benefit, failed and/or refused to assist F Food HK to retain all the existing staff and transportation contractors to continue working for F Food HK.

(f) dishonestly, and for his own benefit, failed and/or refused to assist F Food HK to retain all the existing transportation contractors and staff to continue working for F Food HK.

(g) failed and/or refused to transfer the Licence to F Food HK.

(4) In further breach of the Contract and fiduciary duty, on or about 26 August 2021, Yeung caused Goodsview to be incorporated, and thereafter secretly continued to operate a frozen food wholesale business, under Goodsview, in direct competition with F Food HK.

(5) As a result, F Food HK has suffered and continues to suffer loss and damage.

14.  For the said misrepresentation and breach of contract, other than seeking to rescind the Contract, F Food HK also seeks (a) a declaration that the Defendants were in breach of the Contract, and (b) damages against the Defendants, which include the purchase price paid in the sum of $1,250,000, the purchase price of stock-in-trade paid in the sum of $150,000, exemplary damages, and loss of business and profits.

B3. Misappropriation of goods and money

15.  It is also F Food HK’s case that, before 17 October 2021, Yeung and/or F Frozen Food have on various occasions misappropriated the stocks and/or inventories of F Food HK. In this regard, F Food HK asserts that on various evenings shortly before 17 October 2021, Yeung secretly entered Workshop 1717 and Workshop 2801 and stole some of F Food HK’s frozen food stored therein.

16.  Further, the Defendants dishonestly and/or without prior authority, knowledge, consent or approval of F Food HK misappropriated payments made by or received from customers in settlement for frozen foods supplied by F Food HK after 1 September 2021, in a total sum no less than $46,465.

17.  By reason of the said misappropriation, on pleadings, F Food HK claims the following further damages: (a) value of the goods stolen by the Defendants, (b) payments from customers misappropriated by the Defendants, and (c) loss of business misappropriated. It is to be noted that at trial, F Food HK no longer pursued its claim for loss of business.

18.  As F Food HK does not know the type(s) and exact quantities of the frozen foods stolen by the Defendants, or the full details of the payments from customers misappropriated by the Defendants, it is also seeking an order for an account and all necessary and proper inquiries and directions for the taking of such account. However, in F Food HK’s closing submissions, this claim is also abandoned.

C. THE DEFENDANTS’ DEFENCE AND COUNTERCLAIM

19.  The Defendants’ pleaded case can be briefly summarized as follows:

(1) On 20 July 2021, the Provisional Agreement was reached between Yeung, who acted for the Defendants, and Mak, through his agent, Cheung. Therefore, Mak was the real purchaser of the Business and a party to the Contract.

(2) F Food HK was incorporated on 27 August 2021. Before that, Mak and Cheung did not have the authority to act for F Food HK in negotiating any agreement for the sale and transfer of the Business.

(3) Before the parties entered into the Contract, Mak or Cheung had never mentioned setting up F Frozen HK or any new company to complete the purchase or to take over the Business.

(4) The Defendants have never promised or represented to Mak and/or Cheung that, upon selling and transferring the Business, they would pass over to the purchaser all the business, including all the customers and suppliers; or thereafter the Defendants would not do or be involved in any similar business as a supplier or wholesaler of frozen food.

(5) Neither F Frozen Food nor Yeung made the Representations. Even if the Representations were made by Yeung, they were not intended to be relied on and were, in fact, not relied on by F Frozen HK, Mak and/or Cheung. In any event, the alleged Representations were statements of future intention which, therefore, are not actionable.

(6) No agreement was reached by reason of the alleged Representations.

(7) At the time the Representations were allegedly made by the Defendants, as F Frozen Food had not yet been incorporated, it did not exist and thus could not have relied on them.

(8) Although the Contract was signed between F Frozen Food and Cheung, the real contracting parties were Yeung, Mak and F Food HK. Thus, under the Contract, F Food HK and Mak agreed to purchase the Business from the Defendants, effective from 1 September 2021, for a consideration of $1.5 million.

(9) Further, F Food HK, Mak and Cheung are estopped from relying on the alleged Representations for (a) there was no inducement or reliance, and (b) if the Representations had been made as alleged, they were superseded by the Contract.

(10) The payment of $1,250,000, as part of the contract price, was made by Mak for and on behalf of himself and F Food HK. The balance of $250,000 under the contract remains outstanding, which is due and owing.

(11) The associated food factory licence could not be transferred to F Food HK when it was ready in October 2021 because of the lack of cooperation of Mak and F Food HK.

(12) The $200,000 payment to F Frozen Food and Yeung on 2 October 2021 was not made at Yeung’s request for urgent financial assistance, as alleged; instead, it was paid by Mak voluntarily as part of the contract price, and Mak further agreed to pay the remaining balance within a reasonable time. F Food HK and Mak are therefore estopped from seeking the return of the said sum.

(13) In compliance with the Contract, Yeung attended the workshop and assisted F Food HK in the operation of the Business. Further, although it was not a requirement of the Contract, a full list of customers and suppliers was nevertheless provided to F Food HK and Mak. Yeung has also duly informed the customers and suppliers about the change of ownership of the Business from F Frozen Food to F Food HK. Mak and F Food HK are therefore liable to pay the outstanding sum of $250,000 under the Contract, which F Frozen Food counterclaims.

(14) F Frozen Food was entitled to retain monies received from customers for sales and transactions that occurred before the transfer of the Business on 1 September 2021.

(15) Yeung did not set up Goodsview to run a frozen food business, to deal with customers and suppliers of F Frozen Food or to be in direct competition with F Food HK.

(16) It is therefore denied that Yeung and/or F Frozen Food was in breach of the Contract, or that they owed any fiduciary duty to F Food HK or Mak.

(17) Yeung also denied that he had converted or misappropriated F Food HK’s assets or proceeds during the time when he attended the workshop and assisted F Food HK with the operation of the Business.

(18) Lastly, as the Business and the workshops have been sold by F Food HK to a third party, restitutio ad integrum is not possible, no order for recission should be granted.

D. ISSUES BETWEEN THE PARTIES

20.  There is an Agreed Statement of Issues in dispute filed by the parties. The issues can be boiled down to the following questions:

(1) Are the Defendants liable for fraudulent misrepresentation? If so, what is the entitlement of F Food HK, if any?

(2) Were the Defendants in breach of the Contract? If so, what is the entitlement of F Food HK, if any?

(3) Are the Defendants liable for misappropriation and/or conversion? If so, what is the entitlement of F Food HK?

(4) Is F Food HK and/or Mak liable to pay the Defendants the outstanding contract sum of $250,000?

21.  The parties’ respective contractual obligations under the Contract are matters of contract construction. The answer to the above questions turns on the determination of the following core factual issues:

(1) Was Mak a party to the Contract?

(2) Have Yeung and/or F Frozen Food made the Representations to Mak and/or Cheung before the parties entered into the Contract? If so, have Mak and/or Cheung relied on such Representations?

(3) Had Yeung set up Goodsview to run a similar frozen-food wholesale business, as alleged by F Food HK, before the parties entered the Contract?

(4) After the Contract was entered into, did Yeung solicit F Food HK’s employees and transportation contractors to work for Goodsview, and divert business from F Frozen Food’s customers to Goodsview?

(5) Has Yeung misappropriated F Food HK’s frozen foods and the payments made by F Food HK’s customers for the goods supplied after 1 September 2021?

E. EVIDENCE ADDUCED BY THE PARITES

22.  In this action, the following witness statements were served by the parties:

(1) For F Food HK and Mak: (a) 麥偉章的證人陳述書 dated 30 October 2023, (b) 王慧珊之證人陳述書 dated 30 October 2023, (c) 麥偉章的補充證人陳述書 dated 20 March 2024, and (d) 王慧珊之補充證人陳述書 dated 21 March 2024. At the material time, 王慧珊 was also known as Angel Wong (“Ms Wong”).

(2) For the Defendants: (a) 楊祖兒的證人陳述書 dated 26 September 2023, (b) 盛爵深的證人陳述書 dated 26 September 2023, and (c) 楊祖兒的補充證人陳述書 dated 20 February 2024.

23.  At trial, Mak and Ms Wong gave evidence for F Food HK, whereas Yeung and Shing testified for the Defendants. Having adopted their respective witness statements as their evidence in chief, they were subject to extensive cross-examination by counsel for the opposite party.

24.  The legal principles to be applied in assessing the credibility of a factual witness are well established. These principles were summarized by DHCJ Eugene Fung SC in Hui Cheung Fai v Daiwa Development Limited (unrep, HCA 1734/2009, 8/4/2014) at §§77-81:

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce).

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

“Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”

E1. Evidence of Mak and Ms Wong

25.  Mak’s evidence covered the following:

(1) The circumstances in which he and Cheung learned about the sale of the Business from the advertisement put up by Shing, and the subsequent discussions held with Yeung before the Contract, during which Yeung made the Representations.

(2) What happened after the Contract was entered into, in particular, (a) Yeung failed to provide him or F Food HK a full list of F Frozen Food’s customers and suppliers with the necessary details so as to enable F Food HK to carry on the Business, (b) Yeung failed or refused to timely inform F Frozen Food’s customers of the change of ownership of the Business, (c) Yeung dishonestly misappropriated F Food HK’s frozen foods and receivable, and diverted businesses from customers to Goodsview during the transition period when Yeung was supposed to assist F Food HK run the Business at the workshop, (d) Yeung, without the knowledge and/or permission of Mak or F Food HK, requested the customers to pay him, his wife or someone designated by him directly for the goods supplied by F Food HK, and thereafter did not account for such payments received, etc.

(3) Shortly after the Business was taken over by F Food HK, the employees began leaving to work for Yeung at Goodsview.

(4) Yeung refused to complete the transfer of the Licence to F Food HK when the FHED was ready to process it; instead, in around November 2021, Yeung proposed buying back the Business from F Food HK.

26.  As to Ms Wong, she gave evidence on how she was requested by Yeung to set up Goodsview for Yeung, the reason for putting her, instead of Yeung, as the owner of Goodsview, details of the setting up of Goodsview’s frozen foods storage and processing factory in Yuen Long, and the role played by Yeung in the process. She also testified that, after Goodsview was set up, Yeung approached F Food HK’s employees and encouraged them to leave F Food HK and join Goodsview, and most of them did accordingly. Furthermore, Yeung told her that, as Mak was not personally involved in the daily operations of the Business after the handover, he had stolen more than $200,000 worth of frozen food from F Food HK.

27.  The relevant parts of their evidence are set out in the “Discussion” section below.

28.  All in all, I find both Mak and Ms Wong to be honest and reliable witnesses. They gave direct, and straightforward answers when questioned by the court and under cross-examination. They were helpful and generally did their best to assist the court. Their evidence was logical and without internal inconsistency. More importantly, their evidence (both given orally at trial and in their statements) was supported by contemporaneous documents, photo records and voice messages between Yeung and Ms Wong, and between Mak and Yeung. They remained unshaken after cross-examination.

29.  I was particularly impressed by Ms Wong. She had an affair with Yeung between February 2020 and the end of October 2021, and during that period, she became pregnant with Yeung’s child. Doubting Yeung’s reliability, she decided not to continue with the pregnancy. In about July 2021, Yeung exploited their relationship by asking Ms Wong to establish a new company (which subsequently took the name of Goodsview) on his behalf and assist him in running a frozen food wholesale business that competed with F Food HK. At the time, Ms Wong still believed Yeung would eventually start a family with her, so she complied. She later discovered this was another deception and ended the relationship in October 2021. She came forward and gave evidence for F Food HK regarding details of Yeung’s request to incorporate Goodsview, the setting up of a processing factory/storage for frozen food in Yuen Long, and how Yeung approached his past employees at F Food HK, inviting them to work for Goodsview instead, etc.

30.  Ms Wong’s testimony was direct and forthcoming. Her answers under cross-examination were spontaneous, clear, and firm. She was not shaken in cross-examination. Even when questioned by Ms Kwong (counsel for the Defendants) about the intimate nature of her relationship with Yeung, Ms Wong maintained her composure and continued to give direct and firm answers.

31.  Despite the criticism made by Ms Kwong in her closing against Mak’s and Ms Wong’s evidence, which I have carefully considered, there is no doubt in my mind that both Mak and Ms Wong told the truth in court, and I have no hesitation in accepting their evidence.

E2. Evidence of Yeung

32.  In contrast, I am not impressed by Yeung as a witness. It is Ms Wong’s evidence that she and Yeung had an affair at some point, and because of that, she assisted Yeung to set up and operate Goodsview. However, at trial, in order to discredit Ms Wong, Yeung turned around and said, in 2014, Ms Wong began working at F Frozen Food. Due to Ms Wong’s good performance, she earned a higher commission. However, she misunderstood his intentions and, through various means, attempted to initiate a romantic relationship with him. Ms Wong’s feelings were unreciprocated; he was not interested and maintained a strictly professional relationship with her. There was never any romantic involvement between them.

33.  Ms Wong’s answer to Yeung’s assertion regarding their relationship was as follows:

“(3) 我理解本人和楊祖兒的私人關係與本案的爭議沒有太大直接關係，因此，我於第一份證人陳述書並沒有就該私人關係作出太多陳述。可是，由於楊祖兒在楊的SWS對本人作出完全不實的指控，本人認為需要在此釐清事實，一方面還自己一個清白，另一方面向法庭說明真相。

(4) 楊祖兒聲稱我採取手段要挾他，要和我發展成情侶關係，而本人只是一廂情願，他和我只有工作上的合作關係，沒有男女感情，不能稱得上是男女朋友關係，這完全不是事實。

(5) 事實上，本人從沒採取任何手段要挾他和我發展任何關係，只是讓祖兒想利用我的感情和銷售能力，從而達到更好的業績而不停主動追求我。讓祖兒並聲稱他和他太太已沒有感情，分房睡，而他更懷疑他的兒子是他太太偷情而生下來的，所以他跟他太太已經沒有任何感情。因此，讓祖兒與本人發展成男女朋友關係並發生性行為和懷孕。

(6) 於2022年11月，我因楊祖兒而懷孕。但我當時開始覺得，他並非一個我可以付托終身的男人，並對他失去信心，所以我不想生下我們的孩子，因為這樣會對孩子不公平。於是，我通知楊祖兒我的決定，而他當時更要求我生下我們的孩子。現附上我和楊祖兒在2020年11月17日的WhatsApp對話截圖 (另標上由相關語音訊息轉換的文字副本為附件8)。

(7) 在楊的SWS的第14段，楊祖兒聲稱本人要求他與太太離婚，事實是，楊祖兒一直聲稱他和他太太已沒有感情，分房睡，但是他一直與太太同住，所以，本人曾問他為何不與他太太離婚，而他則不停向我表示，他承諾將來會好好安排我倆日後的生活，但他一直欺騙我。”

34.  Yeung’s assertion that his relationship with Ms Wong was purely professional is plainly untrue; a voice message between Yeung and Wong in November 2020 produced by Ms Wong actually corroborated Ms Wong’s evidence, showing that they indeed had an affair and Ms Wong got pregnant, Ms Wong told Yeung that she did not want to continue the pregnancy, and Yeung tried to convince Ms Wong to keep their baby by saying that the baby was innocent “無辜”.

35.  Further, there were aspects of Yeung’s evidence that are inherently incredible and/or inconsonant with contemporaneous records (including screenshots of text messages and transcripts of voice messages on WhatsApp). The voice message mentioned above is one of those.

36.  As the said records on WhatsApp are damaging to the Defendants’ case, Yeung disputed their authenticity at trial. Since the messages in question were either between Yeung himself and Mak or between Yeung and Ms Wong, I would expect Yeung to challenge their authenticity only if he genuinely believed they were fake.

37.  However, quite unreasonably, Yeung refused to drop the challenge even after F Food HK had shown to the court screen recording video clips prepared by Ms Wong, containing all the WhatsApp conversations, including, inter alia, the voice messages shown on the screenshots.

38.  It was not until the 4^th day of the trial, after Ms Wong managed to download the original WhatsApp records from her iCloud account, that the Defendants abandoned their challenge to the authenticity of those contemporaneous records. Indeed, Yeung subsequently admitted, in cross-examination, that the records of the messages between Ms Wong and him, including the voice messages and their transcriptions[1], were true and accurate.

39.  These contemporaneous WhatsApp records, which Yeung ultimately admitted were true records, clearly show:

(1) As mentioned above, Ms Wong was pregnant with Yeung’s baby in November 2020, and Yeung requested her to keep the baby, but Ms Wong declined.

(2) In late August 2021 at the latest, at the instruction of Yeung, Ms Wong took steps to set up Goodsview and Goodsview’s food processing factory/storage in Yuen Long. Yeung decided on the name “Goodsview” for the new company and gave detailed instructions to Ms Wong regarding the internal fitting-out works to be carried out inside the factory/storage in preparation for the installation of cool room(s) therein for storing frozen food.

(3) Ms Wong needed to seek Yeung’s approval or agreement on various matters in relation to the setting up of Goodsview and the operation of the frozen food business.

(4) Yeung was also the one who financed the said work, including the purchase of container store(s), sourcing and purchasing of suitable cool room(s), the costs of the fitting-out work inside the stores, purchase of frozen foods, etc.

(5) Goodsview’s frozen food business began operation in September 2021.

40.  It is therefore plain from the said records that, before the parties entered into the Contract, Yeung had already directed Ms Wong to set up a new company (ie, Goodsview) for him and to operate a similar frozen food wholesale business in Hong Kong.[2] He was the proprietor of Goodsview and masterminded the whole process. The evidence is overwhelming; I really cannot see any sensible reason for Yeung to continue denying it.

41.  Under cross-examination, Yeung argued that he was just giving Ms Wong his opinion on the name to be adopted for Ms Wong’s own frozen food wholesale business; the new company was not set up for him. As to the setting up of the food processing factory/ storage in Yuen Long, Yeung said Ms Wong only assisted him in setting up a storage for his own “燒味” (BBQ food) business; it had nothing to do with the frozen food wholesale business, as alleged by F Food HK.

42.  However, not only do these excuses not appear in the Defendants’ pleadings, they were also not mentioned by Yeung in his two rounds of statements, despite that Yeung’s supplemental statement was specifically served in response to Ms Wong’s statement, in which she clearly stated that she was requested by Yeung to set up a frozen food storage and processing workshop for him in Yuen Long. Besides, as Yeung also accused Ms Wong of blackmailing and threatening him, it is against human nature that he would still have requested Ms Wong’s assistance with his “燒味” (BBQ food) business. These on-the-spot fabrications do not sit well with Yeung’s other assertions. They are therefore rejected.

43.  Another example illustrating Yeung's lack of complete honesty in giving evidence is his attempt to criticize Mak for not fully disclosing to the court that the Business had been resold to someone else in 2022. In Yeung’s supplemental statement, he gave the false impression that he only became aware of this much later—specifically, through his solicitors in late November or early December 2023. This was how Yeung put it in his supplemental statement:

“(3) 本人從律師團隊傳遞的訊息得知原告人及麥偉章一方其經修訂的答覆書內，指出原告人一方據稱從一間名為Global food Company limited尋求協助(經修訂的答覆書第13(b)及(c))。

(4) 其後，本人就此事作出調查，但遲遲未能得出結果。本人及後發現原告人及麥偉章一方在其證人陳述書完全沒有提及轉售，更加令整件事變得撲朔迷離。

(5) 在2023年11月下旬至12月上旬左右，本人終於確認了原告人及麥偉章一方其實已將業務轉售及或賣盤，並從中得利。

(6) 首先，一間名為茂興環球食品有限公司(“茂興”) 在2022年1月11日向公司註冊處提交了一份註冊辦事處地址更改通知書，並在2022年8月16日作出修改，該公司新地址，正正是和豐工業中心17樓17室，看似是接管及進駐了之前為原告人公司的註冊辦事處地址。根據公司註冊處文件，本人亦查到了茂興董事為葉秀萍女士。…

(7) 另外，本人亦得到一份頂讓合同，該合約是由茂興董事葉秀萍和一名叫 Nam Man Ngai 簽署的，日期為2022年9月23日，並涉及和豐工業中心2801室的食物工場頂讓。 …

(8) 本人得到該頂讓合約後，積極透過不同渠道，希望聯絡上簽約方。

(9) 本人在2023年11月下旬至12月上旬才聯絡上葉秀萍。從她口中得知，原告人及麥偉章一方已經將其業務及工場出售頂讓，… ” (emphasis added)

44.  This is yet another series of falsehoods. Notably, Yeung did not specify in his statement where or how he obtained a copy of the contract between 葉秀萍 and Nam Man Ngai. In his statement, Yeung claimed that he did not know 葉秀萍 or Nam Man Ngai, nor was he aware of the resale of the Business prior to the service of the Amended Reply in July 2023. During cross-examination, apparently to obscure his relationship with Nam Man Ngai, he stated that he obtained the contract from 葉秀萍. However, it remains unclear how Yeung first established contact with Ms Yip if he did not know any of the contracting parties.

45.  In response to Yeung’s assertions above, Mak produced records from the Companies Registry showing that Yeung and Nam Man Ngai have been shareholders of a company called “IKEE GLOBAL FOODS COMPANY LIMITED” (“IKEE”) since 21 October 2022. Therefore, Yeung must have known Nam Man Ngai since at least that date, probably much earlier. It is also noteworthy that Nam Man Ngai entered into a contract with 葉秀萍 on 23 September 2022, with the handover date for the Business set for 10 November 2022, and during this period, Yeung and Nam Man Ngai became partners in IKEE. Given these circumstances, it is difficult to believe that Yeung was unaware of the resale of the Business until more than a year later. It is likely that Yeung obtained the contract directly from Nam Man Ngai; he may, in fact, be involved in and have a vested interest in the transaction between Ms Yip and Nam Man Ngai.

46.  Apart from that, under cross-examination, Yeung also made verbal assertions in the witness box that contradict his own statements.

47.  Yeung clearly did not tell the truth in court. I agree with Mr Koo’s submissions that Yeung was prepared to do whatever it takes, or to make whatever false statements necessary to deny F Food HK’s case or to rebut its evidence. His evidence is unreliable. Therefore, to the extent that Yeung’s evidence is inconsistent with that of Mak or Ms Wong, I prefer that of Mak and Ms Wong.

E3. Evidence of Shing

48.  As to Shing, he was supposed to be an independent witness without self-interest in the outcome of this action. However, it was apparent that he was prepared to give evidence in line with the Defendants’ case and Yeung’s evidence. A great number of paragraphs in his statement are substantially similar to the corresponding parts of Yeung’s statement.

49.  In the witness box, Shing said he drafted his own witness statement. And he only passed it to the Defendants’ legal representatives via WhatsApp for conversion into the proper legal format and correction of only grammatical, typographical or terminology errors.

50.  However, I note that a great number of paragraphs in his statement are substantially similar (on occasions identical) to the corresponding parts of Yeung’s statement. In view of the striking similarities between the contents of Yeung’s statements and Shing’s statement, it was probably not the case.

51.  When Shing was taken by Mr Koo to paragraph 13 of his statement and paragraph 23 of Yeung’s statement and asked why the paragraph in question that he allegedly drafted personally would be almost identical to that of Yeung, Shing made no attempt to explain, but merely said he had “no comment”. The lack of an attempt to explain is telling.

52.  In Melvin Waxman and Another v Li Fei Yu and Another [2022] HKCFI 3579, Hon K Yeung J, in dealing with a similar situation, stated at §§57-59 that: -

“57. In Au Yeung Pui Chun v Cheng Wing Sang [2021] HKCFI 463, large parts of the statements of two of the witnesses called by the plaintiff were identical. G Lam J (as he then was) remarked that feature as being “striking”. His Lordship in §§31 to 34 of the judgment cited a number of authorities, both local and from other jurisdictions, which deprecated that practice. Such degree of similarity between the statements or affidavits of 2 witnesses substantially devalues the weight to be given to either, to the point that neither can be treated as reflecting a genuine individual recollection of events as distinct from a collective reconstruction of them – see In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789, per Black J at §18.

58. I have considered Chan Chung Yee v Chan Wah Cho Joe [2018] HKCFI 611 which Mr Lai has cited to me. At §37, whilst Deputy Judge A To did suggest that the assertions in witness statements are expected to be corroborative of the calling party’s evidence and similar to the same, the learned Deputy Judge also observed that “[w]hether a witness statement is the product of copy and paste from another witness’ statement is easy to tell.” In the present case, LW/WS is clearly the product of copy and paste.

59. In the present case, given the material identity between the contents of MW/WS1 and LW/WS, I find that P2 is prepared to adopt as his evidence whatever appear in MW/WS1, irrespective of their truth (or otherwise), and irrespective of whether he has any personal knowledge of the same. He is also evasive as a witness. I find that he is not an honest and reliable witness who gives evidence according to his independent recollection and documents available to him, but is prepared to say whatever (in MW/WS1 or otherwise) to assist P1’s and his case. I am unable to attach any weight to his evidence.” (emphases added)

53.  I further note that when Shing was cross-examined by Mr Koo on paragraphs 12(7) and 21 of his statement, in which he stated that Cheung signed the Provisional Agreement and the Contract on behalf of Mak, he admitted that it was incorrect. Regrettably, Shing did not even try to explain why he adopted his statement in chief, even though he knew that at least some of the facts it contained were untrue. This casts further doubt on the veracity of his statement.

54.  Given that there is no suggestion that Shing discussed the matter with Yeung prior to preparing their respective witness statements, and further considering Shing’s inability to provide any explanation or justification for the similarities identified during cross-examination, I am not satisfied that Shing’s statement reflects his personal recollection of the facts stated therein.

55.  Further, Shing’s statement contains Shing’s interpretation of the Contract, which is not helpful to the court.

56.  Accordingly, I attach little weight to Shing’s evidence that was adduced by adopting his statement.

57.  However, unlike Yeung, I find that Shing had no intention of lying in court; he tried hard to recall what happened at the time and did his best to assist the court. When he was put to the relevant parts of his statement, which were disputed by F Food HK, Shing readily admitted the inaccuracies and supplemented or corrected them accordingly. For instance, Shing clarified paragraph 16 of his statement, stating that on either 16 July 2021 or 19 July 2021, Mak had made clear to Yeung that a new company with a name similar to F Frozen Food would be set up to take over the Business.

F. DISCUSSION

F1. Mak acted on behalf of F Food HK and was not a party to the Contract

58.  When there is an issue as to the identity of a contracting party, it is well settled that extrinsic evidence is admissible for its determination. It was held in Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470 by Jackson LJ at §57 that:

“(i) Where an issue arises as to the identity of a party referred to in a deed or contract, extrinsic evidence is admissible to assist the resolution of that issue.

(ii) In determining the identity of the contracting party, the court’s approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.

…

(iii) Where the issue is whether a party signed a document as principal or as agent for someone else, there is no automatic relaxation of the parol evidence rule. The person who signed is the contracting party unless (a) the document makes clear that he signed as agent for a sufficiently identified principal or as the officer of a sufficiently identified company, or (b) extrinsic evidence establishes that both parties knew he was signing as agent or company officer.” (emphases added)

59.  It is Mak’s evidence that since 16 July 2021, when the parties met to discuss the purchase of the Business, Yeung was aware that Mak and Cheung would set up a new company and use it to purchase and take over the Business.

60.  As mentioned above, Shing also clarified at trial that the same was made clear to Yeung either on 16 July or 19 July 2021.

61.  As to Yeung, in answer to the court, he confirmed that on 20 July 2021, ie when the parties signed the Provisional Agreement, Mak told him that a new company with a name similar to F Frozen Food would be set up to take over and run the Business. F Food HK was subsequently incorporated on 3 August 2021 for that purpose. Yeung further said that, when the Contract was entered into on 31 August 2021, he learned that the new company to take over the Business was F Food HK.

62.  In the premises, I am satisfied that, at the time of the Provisional Agreement, the common understanding of Cheung, Mak and Yeung was that the Business would be taken over by a new company to be specifically set up by Mak and Yeung for such purpose; and at the latest by 31 August 2021, the common consensus between the said parties was that the new company to take over the Business was F Food HK, and Cheung signed the Provisional Agreement and the Contract for and on behalf of F Food HK.

63.  I therefore hold that although Mak was one of the founding members and directors of F Food HK, he was not a party to the Contract. The real contracting parties were F Food HK, F Frozen Food and Yeung.

F2. Fraudulent Misrepresentation

64.  In mid 2021, Yeung approached Shing regarding the sale of the Business. Subsequently, under the instruction of Yeung (acting on behalf of F Frozen Food), Shing placed an advertisement on his company’s website and various social media platforms for the sale of the Business (“the Advertisement”).

Representations

65.  In the Advertisement, F Frozen Food/Yeung presented to the public, inter alia, that:

(1) The monthly turnover of the Business is around $2.3 million, and the profit per month is over $200,000.

(2) The company has been operating for a long time and has a steady customer base.

(3) With employees retained, the buyer can smoothly continue the Business.

(4) The sellers can assist new buyers with initial operations of the Business.

66.  In early July, Mak and Cheung noticed the Advertisement and noted that the business for sale includes a food processing license, cool room(s), and all the profit-generating tools and equipment, etc, with a monthly profit of $200,000. Further, the owner can train the buyer in the necessary trade skills required to run the Business.

67.  On 16 July 2021, Shing arranged for Mak and Cheung to meet Yeung at Workshop 2801 for their first meeting, during which Yeung (also acting for F Frozen Food) made to Mak and Cheung the following representations (ie the Representation):

(1) The Defendants would transfer the entirety of the Business, including inter alia the tenancy for the Workshops, the Licence, all tools and equipment, the complete customer and supplier base, as well as the existing staff members;

(2) The Defendants would assist the purchaser in its takeover of the Business; and

(3) The Defendants would not engage in any similar business following the transfer of the Business.

68.  On 19 July 2021, Mak and Cheung met Yeung for the second time. On that occasion, Yeung reiterated that he and F Frozen Food would fulfil their commitments, including assisting the buyer in taking over the frozen food wholesale business, retaining the existing staff, and that he would not operate or participate in any other similar businesses. The parties therefore reached an oral agreement to sell the Business to Mak’s and Cheung’s new company for $1.5 million.

69.  With Shing’s help, the parties signed the Provisional Agreement on 20 July 2021. The terms of the Provisional Agreement were prepared by Shing based on the parties’ agreement on 19 July 2021. It contains, inter alia, the transfer of all tools and equipment and the Defendants’ commitments including (a) within one month of the transaction, the Defendants would assist the new company in operating its frozen food wholesale business, (b) helping the new company retain F Frozen Food’s original employees, and (c) the Defendants agree not to work in the frozen meat wholesale industry for 84 months after the transfer of the Business.

70.  The written terms of the Provisional Agreement, which largely align with the Representations, suggest that the Defendants made these Representations before the parties entered into the contract.

71.  Given that the Defendants stated the Representations in the Advertisement and reiterated the same commitments to Mak and Cheung at the meetings on 16 July 2021 and 19 July 2021, it is self-evident that the Defendants made these Representations with the intention that Mak and Cheung would rely on them.

72.  After the Provisional Agreement was executed, on 3 August 2021, Mak and Cheung established F Food HK in preparation for the future takeover of the Business. The company name, “Friends Food (Hong Kong) Company Limited (老友記食品(香港)有限公司)” (ie F Food HK), was deliberately chosen by Mak and Cheung to resemble that of the vendor company, “Friends Frozen Food Company Limited (老友記冷凍食品有限公司)” (ie F Frozen Food), with the aim of ensuring a smooth transition of the Business, particularly regarding its customer base.

73.  The formal sale and purchase agreement (ie, the Contract) was executed on 31 August 2021.

74.  As explained above, although Cheung was still named in the Contract as the buyer, the real buyer that ought to have been stated therein should be the new company, F Food HK.

75.  The Contract also contains express terms in line with the commitments stated in the Representations.

76.  In view of the nature of the transaction, in particular the kind of business being transferred thereunder, and the circumstances in which Mak and Cheung entered into the Provisional Agreement and, subsequently, the Contract, I am also satisfied that Mak and Cheung have at the material times relied on the Representations, and they would not have agreed to purchase the Business but for the Representations.

Falsity of the Representations

77.  The following is Ms Wong’s evidence, which I accept.

78.  In around the second half of July 2021, Yeung asked Ms Wong, who at the time was Yeung’s girlfriend, to help him set up a new company in Ms Wong’s own name to run a frozen food wholesale business, similar to what F Frozen Food was doing. Yeung further told Ms Wong that he was selling F Frozen Food’s business, and he promised the buyer he wouldn’t operate a frozen food wholesale business or anything similar. Therefore, he couldn't use his own name; he needed Ms Wong’s help to set up a new company under her own name to continue operating the business.

79.  Ms Wong asked Yeung why he didn’t ask his father or his wife, Lam Oi Lai, for help. Yeung replied that his father owned a public housing unit and couldn’t own the company, and that his wife couldn’t run the company on his behalf due to tax concerns.

80.  All the work involved in setting up Goodsview was carried out by Ms Wong personally as per Yeung's instructions.

(1) First, in August 2021, at Yeung’s request, Ms Wong applied to establish a new company and searched for suitable Chinese and English names for it.

(2) Yeung has made a few suggestions for the company’s name. At the end, he chose 昊景貿易有限公司 (Goodsview Trading Limited) (ie, Goodsview).

(3) On 26 August 2021, Goodsview was incorporated by Ms Wong for Yeung. As requested by Yeung, Ms Wong was also registered as the sole shareholder and director of Goodsview.

81.  After establishing Goodsview, Yeung began preparations to set up a frozen food processing workshop and storage for the business of Goodsview. He found an empty lot in Yuen Long (part of DD 119 Lot 484) for the establishment of the said storage and food processing workshop. Ms Wong therefore assisted him in establishing the workshop in accordance with Yeung’s instructions and requirements.

82.  Ms Wong emphasized that Yeung made all the decisions regarding the establishment, opening, and preparation of the storage and food processing workshop. She only carried out the work according to his instructions and requirements, contacting relevant personnel and handling related matters, including handling the required internal fitting-out work, purchasing refrigerated cabinets (cool rooms) and office containers, etc. Yeung covered all the expenses.

83.  The contemporaneous records of the exchange between Yeung and Ms Wong via WhatsApp (including photos, text and voice messages) concerning the setting up of Goodsview and the workshop in Yuen Long, disclosed by Ms Wong, support Ms Wong’s evidence.

84.  Regarding the operation of the new frozen food wholesale business under Goodsview, Ms Wong further testified that:

(1) She witnessed with her own eyes that Yeung was operating a frozen food business under Goodsview at the Yuen Long food processing workshop, and that the operations there were identical to those of F Frozen Food.

(2) Yeung did not operate any “燒味” (BBQ food) business at the Yuen Long premises, as Yeung said (under cross-examination). Yeung’s “燒味” (BBQ food) business was operated from Room 1002, Hang Wai Industrial Centre, Tuen Mun.

(3) Most of Goodsview’s clients were former customers of F Frozen Food. In fact, Yeung had actively planned to transfer F Frozen Food’s customer base to Goodsview.

(4) Yeung told her that, effective 1 September 2021, F Frozen Food would no longer belong to him, but to the new buyer. He said he was required to assist the new buyer for one month. During this period, as the new buyer lacked experience in managing the business, Yeung secretly took a significant quantity of frozen meat, valued at more than HK$200,000.

(5) For Goodsview, Yeung also gave Ms Wong information on some of F Frozen Food’s existing customers for her to handle, while another part of those customers was handled by Yeung Ka Chai Michael (楊家齊), a member of the sales team at F Frozen Food.

(6) All along, she was merely holding Goodsview on behalf of Yeung, and, as his girlfriend at the time, she voluntarily assisted him with some tasks, including preparing invoices and verifying orders, etc. In fact, all the business and operations of Goodsview were run and decided by Mr Yang.

(7) As a result, most of F Frozen Food’s former customers began placing orders with Goodsview in October 2021.

85.  It is noteworthy that Mak also testified that, in addition to operating Goodsview, Yeung also ran a frozen food wholesale business through another company, Goodwill Frozen Food Company (好景凍肉) (“Goodwill”). Mak claimed that Yeung similarly misappropriated and transferred business and customers that should have belonged to F Food HK. Both Goodsview and Goodwill share the same registered address. The registered owner of Goodwill is Yeung Ka Chai Michael (楊家齊), the same person, according to Ms Wong, whom Yeung entrusted to handle some of F Frozen Food’s former customers.

86.  Whilst it is well established that a claimant must rely on a misstatement of fact, rather than mere promises, to establish a claim for misrepresentation, a promise may nonetheless constitute a representation as to the promisor’s present intention regarding future conduct. Accordingly, if it can be shown that the promisor, at the time of making the promise, in fact had no such intention, that constitutes an actionable misrepresentation. See Glory Gold Limited v Star Play Development Limited [2008] 2 HKLRD 416 (CA) at §20.

87.  There is no clear evidence as to when the Defendants formed the intention not to properly and fully transfer the Business to F Food HK after the execution of the Contract.

88.  However, the evidence clearly shows that before the Contract was entered into, while the Defendants were still representing to Mak and Cheung that, inter alia, they would not engage in any similar business following the transfer of the Business, Yeung had already formed the intention, and started taking steps, in setting up a new company, Goodsview, to operate a similar frozen food wholesale business in competition with the future buyer of the Business. Thus, at the time the Representations were made, the Defendants had no intention of honouring the promise and knew they were false.

89.  In law, a representation made to the promoters of the company, that is yet to be incorporated, is taken as an inducement to the company, with an intention that it would be acted upon by the company. See Peconic Industrial Development Ltd v Lau Kwok Fai and Others (unrep, HCA 3083/2002, 01/06/2006) at §156:

“In short, a representation made to a company promoter with the intention that it should be acted upon by the company when formed becomes a representation to the company: Spencer Bower, Turner and Handley, Actionable Misrepresentation (4^th ed.) para. 166. As Peconic was acquired as the corporate vehicle for the specific purpose and as part of the plan to acquire the properties, and as Chio’s representations were addressed to the bank officers with a view to inducing the Bank to participate in the joint venture which was done through Peconic, there is no question of separating artificially the Bank from Peconic in the present context (i.e. in terms of the identity of the representee and reliance). See also Leslie Leithead Pty Ltd v. Barber (1965) 65 SR(NSW) 172, 177, quoted by Mr Scott in paragraph 28 of his final submission.”

90.  Further, the Representations continued until the Contract was entered into between F Food HK, as the purchaser (with Cheung as its agent), and Yeung and F Frozen Food, as the vendor. See: Peconic at §157:

“Furthermore, a representation having been made for the purpose of an intended transaction will normally be regarded as continuing until the transaction is entered into or completed, unless varied or withdrawn in the meantime: Spencer Bower, at para. 61. At no time did Chio ever withdraw or modify the misrepresentations that he had made to the bank officials or Peconic’s board after the formation of Peconic.”

91.  Although the evidence only shows that the Defendants had no intention to honour part of the Representations at the time when they were made, namely, not to engage in any similar business as a supplier or wholesaler of frozen food after the transfer of the Business, it is sufficient to mount an action for misrepresentation, as the misrepresentation does not have to be the sole cause of the representee’s decision to enter into the contract. In Cartwright, Misrepresentation, Mistake and Non-Disclosure (7^th Ed) at §3-57, the author states:

“The courts' willingness to infer reliance from the materiality of a statement is a consequence of the difficulty faced by a representee in proving why he entered into a contract.

“It is impossible so to analyse the operations of the human mind as to be able to say how far any particular representation may have led to the formation of any particular resolution, or the adoption of any particular line of conduct. No one can do this with certainty, even as to himself, still less as to another.”

Using as the paradigm case the pre-contractual misrepresentation, the starting-point is clear: look for evidence that the statement caused the representee to enter into the contract-or, at least, was one of the causes. The decision to enter into a contract is generally based on a range of motives and as long as any one of those motives is vitiated by the misinformation given by the other party, it is enough to undermine the whole transaction: the misrepresentation need not be the sole cause of the representee's decision to enter into the contract.”

92.  The subsequent inclusion of a similar non-competition provision in the Provisional Agreement and the Contract confirms that, at the material times, both Cheung and Mak, as promoters of Goodsview, relied on and were induced by the relevant part of the Representations, which is now proved to be false.

93.  In the premises, I am satisfied and find that (a) the Defendants had, prior to the Contract, made a false representation to Mak and Cheung (as promotors of F Food HK), which the Defendants knew the same was untrue, and had no intention to honour, and (b) the Defendants intended that the said false misrepresentation to be relied upon by Mak and Cheung, (c) Mak and Cheung did rely on it and were thereby induced to enter into the Contract, and (d) before the Contract was entered into, the Defendants had planned to set up Goodsview to be engaged in a similar frozen food wholesale business and subsequently started operating the said business in around late October 2021.

94.  I, therefore, hold that the Defendants are liable for fraudulent misrepresentation.

F3. Breach of contract

95.  The Contract contained the following material terms:

(1) Under clause 1.2 – The Defendants shall transfer “營運中及洽談中之所有業務、所有客戶及所有供應商 (甲方須轉讓並提供所有客戶及所有供應商予乙方跟進)”, meaning the business to be transferred includes All businesses, customers, and suppliers that are in operation or under negotiation (Party A shall transfer and provide all customers and all suppliers to Party B for follow-up).

(2) Under clause 2.2 – The Defendants “須提供食牌轉名所須文件與乙方跟進，並須配合將位於 “新界葵涌打磚坪街68號和豐工業中心17樓17室” 之 “食物製造廠牌照” 成功轉名至乙方名下” (meaning “The necessary documents for the food license transfer must be provided to Party B for follow-up, and Party A must cooperate to successfully transfer the “Food Processing License” located at “Room 17, 17^th Floor, Wo Fung Industrial Centre, 68 Ta Chuen Ping Street, Kwai Chung, New Territories” to Party B’s name.”)

(3) Under clause 2.3 – “食物工場 (牌照連生財工具) 暨業務轉讓予乙方後，同意轉讓日期起計按往常工作程序協助及指導乙方壹個月承續營運業務。” (meaning “After the workshop (including the license and associated tools) and its operations are transferred to Party B, Party A agreed to assist and guide Party B in the usual operating procedures for one month from the date of transfer.)

(4) Under clause 2.5 – The Defendants shall “協助乙方留用所有員工繼續為乙方營運業務。” (meaning “Assist Party B in retaining all employees to continue operating Party B's business.”)

(5) Under clause 2.6 – The Defendants shall “協助乙方留用所有外判運輸承包商為乙方營運業務。” (meaning “Assist Party B in retaining all transportation contractors for Party B's business operations.”)

(6) Under clause 2.7 – “食物工場 (牌照連生財工具) 暨業務轉讓予乙方後起計84個月內不得以任何形式或以任何名義親身經營及或協助他人經營凍肉批發業務 (除協助及或與乙方合作外)。” (meaning “Within 84 months from the date of the transfer of the food processing workshop (including the license and associated tools) and business to Party B, Party A shall not personally operate or assist others in operating a frozen food wholesale business in any form or under any name (except for assisting and/or cooperating with Party B”)

Clause 2.7 is enforceable

96.  Clause 2.7 is a restrictive covenant, Ms Kwong submitted that it is for the party who relies on a restrictive covenant to prove the same is enforceable, a bare assertion that the clause is enforceable is not enough, see Natuzzi SPA v De Coro Ltd [2006] HKCFI 631, HCA 4166/2003, 16 June 2006, per Lam J (as he then was) at §63.

97.  She further submitted that F Food HK failed to establish that clause 2.7 is enforceable. There is no evidence or justification for a restrictive 84-month period that not only extends to operating a frozen food business but also to assisting others in doing so. The wide scope of the restriction, she submits, is not justified.

98.  In response, Mr Koo submitted that whilst the basic rule is that covenants in restraint of trade are unenforceable unless they can be shown to be reasonable in the interests of the parties and in the public interest, a distinction has to be drawn between a covenant between master and servant, and a covenant against competition, which is what clause 2.7 is. Mr Koo relies on Degreeasia Limited v Paules Lee Siu Yuk and ors, HCA 1686/2006, 25 June 2020, in which Recorder Shieh SC summarized the law on the enforceability of restrictive covenant at §32 and §§33(1) and (2) that:

“32. The basic rule is that covenants in restraint of trade are unenforceable unless they can be shown to be reasonable in the interests of the parties and in the public interest (see Bridge v Deacons [1984] 1 AC 705 at 713A–B per Lord Fraser of Tullybelton). It is trite that the burden of demonstrating the reasonableness of a covenant is on the party seeking to enforce it, in this case Degreeasia.

33. The law on enforceability of restrictive covenants in an employment contract is later conveniently summarized in Office Angels Ltd v Rainer-Thomas and O’Connor [1991] IRLR 214. They are as follows:

(1) If the court is to uphold the validity of any covenant in restraint of trade, the covenantee must show that the covenant is both reasonable in the interests of the contracting parties and reasonable in the interests of the public; (see for example Herbert Morris Ltd v Saxelby [1916] AC 688 at p.707 per Lord Parker of Waddington).

(2) A distinction is, however, to be drawn between (a) a covenant against competition entered into by a vendor with the purchaser of the goodwill of a business, which will be upheld as necessary to protect the subject-matter of the sale, provided that it is confined to the area within which competition on the part of the vendor would be likely to injure the purchaser in the enjoyment of the goodwill he has brought, and (b) a covenant between master and servant designed to prevent competition by the servant with the master after the termination of his contract of service: (see for example Kores Manufacturing Co Ltd v Kolok Manufacturing Ltd [1959] Ch 109 at p.118 per Jenkins LJ).

99.  I am of the view that a restrictive covenant against competition, entered into between a purchaser and a seller of a business, should be upheld when necessary, especially when the agreement has been negotiated at arm’s length between two business entities.

100.  In Thorsten Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, Lord Macnaghten stressed that one might not “sell the cow and sup the milk”, at page 572-573, he said:

“… There is a homely proverb current in my part of the country which says you may not " sell the cow and sup the milk." That is just what Mr Howe tried to do. He was a solicitor in large practice. He sold his business for a good round sum to two younger practitioners, and covenanted not to practise on his own account in England or Scotland. In order to hold the business together his name was kept in the firm and he remained in the office, drawing a handsome salary. Then there was a quarrel; and he carried off surreptitiously all the papers he could lay his hands on; he set up in the immediate neighbourhood: and he tried to steal the business he had sold. His defence was that a covenant so wide was against public policy. But it did not occur to him to return the price: that he kept in his pocket. Lord Langdale thought the public would not greatly suffer if Mr Howe withdrew for a time from the ranks of an honourable profession. I cannot think he was very wrong. It seems almost absurd to talk of public policy in connection with such a case. It is a public scandal when the law is forced to uphold a dishonest act: … Lord Langdale held, on the evidence before him, that the restraint was not unreasonable, although it extended to the whole of England and Scotland. Whether he was right or wrong in that view it is impossible to say without knowing what the evidence was. … I venture to think that the decision in Whittaher v. Howe (1) was right.”

101.  Returning to the facts of this case, F Food HK and the Defendants negotiated and entered into the Contract at arm’s length. In exchange for a $1.5 million payment from F Food HK, the Defendants agreed to relinquish their rights or ability to engage in a similar business in Hong Kong for a period of 84 months.

102.  In my opinion, the true essence of the Contract is that the primary subject of the sale is the goodwill of the Business and its customer base; the operating tools, equipment, and even the workshops are secondary. Thus, F Food HK’s right over the acquired goodwill and the associated client base must be protected.

103.  From a public-interest perspective, the transaction involves the transfer of an existing business, which will continue to be operated by F Food HK. Upholding the covenant would not in any way prejudice the existing customers or society at large.

104.  Further, Yeung admitted that substantial time and effort would be needed to build up and/or secure regular customers for the Business. He described this process figuratively as “要煲啲客”. And customers of the Business would continue placing orders with him rather than with the new owner if he continued to operate a frozen food business.

105.  One also has to bear in mind that,

(1) The subject sale concerned the transfer of the entire Business, which includes its steady and substantial clientele, whose loyalty to F Food HK had yet to be secured.

(2) The clientele undoubtedly formed a cornerstone of the sale, without which the entire transaction would be worthless.

(3) The Defendants had the obligation to procure the transfer of the Business, including the transfer of the client base from F Frozen Food to F Food HK.

106.  In the specific circumstances of this case, I further find the restriction, both in terms of time and space, that clause 2.7 seeks to impose is reasonable. I do not consider it just or appropriate to permit the Defendants to avoid the non-competition provision at issue. Nor is there any justification on public policy grounds for not upholding this provision.

107.  For the above reasons, I hold that clause 2.7 of the Contract is valid and enforceable.

Setting up and operation of a new frozen food wholesale business (Goodsview) in competition with F Food HK

108.  In light of my factual findings in section F2 above, the Defendants were plainly in breach of clause 2.7 of the Contract.

Implied duty of good faith and fidelity

109.  F Food HK contended that, by implication, in performing their obligations under the Contract, the Defendants owe F Food HK a fiduciary duty and a duty of good faith.

110.  It was denied by the Defendants. Ms Kwong submitted that F Food HK’s plea regarding the said duty is defective; nothing has been pleaded as to the basis, how, or why any alleged fiduciary duty or duty of good faith and fidelity would arise. No particulars have been provided by F Food HK.

111.  Ms Kwong also contended that, on the facts of this case, there is no discernible basis for imposing a duty of good faith and fidelity on the Defendants. With respect, I do not agree.

112.  It is to be noted that what was being transfer under the Contract was, as described in clause 1.2, “營運中及洽談中之所有業務、所有客戶及所有供應商 (甲方須轉讓並提供所有客戶及所有供應商予乙方跟進) ” (All businesses, customers, and suppliers that are in operation or under negotiation (Party A shall transfer and provide all customers and all suppliers to Party B for follow-up).

113.  It was clear from the evidence that details of F Frozen Food’s businesses, customers and suppliers in operation or under negotiation were within the peculiar knowledge of the Defendants only; F Food HK and Mak or Cheung had no knowledge of the same. Therefore, in agreeing to purchase the Business, Mak and Cheung (acting on behalf of F Food HK), as a matter of course, must have reposed confidence and trust in the Defendants that the latter would take steps to effect the transfer in good faith with best or reasonable endeavours. There were elements of trust and confidence in the Defendants, and of dependence and vulnerability in F Food HK, in the relationship between the parties. See the relevant legal principle explained by the Court of Appeal in Hong Jing Company Limited v Zhuhai Kwok Yuen Investment Company Limited [2013] 1 HKLRD 441, at §37.1, §37.18 to §37.23:

“37.1) That during the exclusivity period the defendant was only entitled to negotiate with the plaintiff is clear. However, this was not the only contractual obligation of the defendant under the P’s MOU. It was required to approach BOCGI to reach a deal on the sale of the debts and properties so as to enable the plaintiff to acquire the debts and properties in turn from the defendant. This requirement is apparent from the terms of the P’s MOU. Given the requirement of the defendant’s obligations, I see no difficulty in implying a duty on the defendant to use its best or at least reasonable endeavours in good faith.

18) What has been discussed so far is the contractual obligation of the defendant. The plaintiff’s case is that the defendant also owed a fiduciary duty as well. Mason J (as he then was) in Hospital Products Limited v. United States Surgical Corporation and others (1984) 156 C.L.R. 41 at 96-97 addressed the characteristics of a fiduciary relationship:

‘The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman (25)), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position…….

It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed: see generally Weinrib, “The Fiduciary Obligation”, University of Toronto Law Journal, vol. 25 (1975), pp. 4-8…..’ (emphasis added)

19) Mason J at page 97 contractual and fiduciary duties:

‘That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.’

21) Mason J’s view was cited with approval by the Court of Final Appeal in Active Profit Ltd v. Nissho Iwai Hong Kong Corporation Ltd. & Others [2006] 4 HKLRD 467 at 483 and in Kelly v. Cooper [1993] AC 205 at 215.

22) As stated by Mason J in Hospital Products Ltd, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship, although the terms of the contract can modify the extent and nature of the fiduciary duty (see Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145).

23) In my view, the elements of confidence and trust on the defendant, and dependence and vulnerability of the plaintiff which are crucial elements in a fiduciary relationship were present in the relationship between the plaintiff and the defendant:

(1) The negotiations in relation to the purchase of the BOCGI debts and properties were conducted by the defendant. The steps to be taken and the content of the negotiation were within the peculiar knowledge of the defendant. This necessarily required the plaintiff to repose confidence and trust in the defendant with the implied duty of the defendant to pursue the matter in good faith with best or reasonable endeavours.

(2) The ability of the plaintiff to acquire the debts and the properties was dependent on the action to be taken by the defendant. This dependency and vulnerability of the plaintiff are implicit in the provisions of the P’s MOU on the structure of the agreements to be entered into in the event of a successful acquisition.…” (emphasis added)

114.  Even if I am wrong in holding that the relationship between the parties gave rise to a duty of good faith, giving the nature of the Defendants’ obligations set out in the express terms quoted above, I am of the view that, either as a matter of construction or it goes without saying, the Defendants shall perform the Contract, in particular those obligations, honestly and with integrity.

115.  Unfortunately, the Defendants failed to do this.

Failure to transfer business and clients

116.  Pursuant to clause 1.2 of the Contract, the Defendants have to transfer the business of F Frozen Food to F Food HK, which includes business in operation and under negotiation, and all the customers and suppliers. It is specifically provided that the Defendants must provide all customers and suppliers to F Food HK for follow-up. On proper construction, it must mean providing F Food HK with the necessary information about customers and suppliers, including, for example, names, addresses, telephone numbers, or contact information, types of frozen goods supplied, payment terms, etc.

117.  Under cross-examination, Yeung indeed accepted and confirmed that, in order to facilitate the transfer of the entire Business to F Food HK, the Defendants had to:

(1) provide F Food HK with a list, or information, of all clients of the Business, including inter alia those handled by its sales agents, such as Yeung Ka Chai, together with their respective contact numbers; and

(2) notify the clients that the Business had been transferred to F Food HK and inform them of the particulars of the new contact persons of F Food HK.

118.  However, Yeung failed to do so; despite Mak’s repeated requests, Yeung did not provide a list of clients/customers with sufficient details to enable F Food HK to follow up. Mak was adamant that very little information regarding the customers’ contact details could be found in the computer, and his repeated requests were ignored by Yeung.

119.  It was not until a month later that Yeung provided Mak a handwritten, but incomplete, list of customers. Under cross-examination, Yeung effectively admitted that the belated handwritten list he prepared was incomplete; he even suggested that Mak could have visited the customers to obtain their phone numbers.

120.  The transfer of the Business took place on 1 September 2021; however, Yeung failed to promptly inform customers/clients of the change of ownership of the Business, and when Yeung purported to do it much later, Yeung intentionally misstated the date of transfer and still asked customers/clients to continue contacting him and to pay him directly.

(1) On 20 September 2021, Mak sent Yeung a draft notice containing, inter alia, the particulars of the contact persons of F Food HK for Yeung’s circulation to the clients/customers. However, Yeung failed to do so. Therefore, Mak had to remind Yeung again on 14 October 2021, but Yeung continued to ignore it.

(2) Under cross-examination, while Yeung admitted that Mak had sent him the draft notices, he said that those were merely drafts sent for his comments. Yet, Yeung did not act, let alone provide any comment; he simply ignored it.

(3) In a notice[3] under the heading of F Frozen Food that Yeung issued, while Yeung was supposed to inform F Frozen Food’s customers of the change of ownership, he misstated, obviously intentionally, that there would be a change of name in October 2021 (instead of 1 September 2021). The new name given by Yeung was like, but not F Food HK.

(4) Yeung went even further, asking customers to continue contacting him directly after the name change.

(5) He also asked the customers to pay him, instead of F Food HK, for the goods supplied by F Food HK in September and October 2021.

121.  In an attempt to salvage his failures, in cross-examination, Yeung asserted for the first time that (a) he had orally informed the customers, who called him, that the Business had been transferred to F Food HK and asked them to place orders with it, and (b) since 1 September 2021, he had planned to bring Cheung and Mak, or their representatives, to visit the customers in person, which he said would be better than sending notices. However, there was no evidence showing that Yeung had ever proposed a date for the intended visits. If these were true, they would have been set out in the Defendants’ pleadings or Yeung’s witness statements. As they were not, it was probably another fabrication of Yeung, which I reject.

122.  It is clear from the evidence that Yeung deliberately concealed the transfer of the Business from the customers; what Yeung did was, self-evidently, to pave the way to misappropriate F Food HK’s receivables for the frozen foods supplied to its customers after 1 September 2021, which is the subject matter of F Food HK’s misappropriation claim in this action. At the very least, it was a clear breach of clauses 1.2 and 2.3 of the Contract.

Diversion of business to Goodsview

123.  Furthermore, there was evidence to show that, during the period from 1 September 2021 to 14 October 2021, when Yeung purportedly assisted F Food HK to run the Business, Yeung had been diverting F Food HK’s businesses to Goodsview.

(1) Ms Wong testified that most of Goodsview’s customers were the former customers of the Business. And, in fact, Yeung had been planning to transfer F Frozen Food’s former customers to Goodsview. For that purpose, Yeung passed her the information on some of F Frozen Food’s former customers, asking her to be responsible for contacting them, while Yeung Ka Chai was responsible for the other customers.

(2) As a result, most of the former customers of the Business began placing orders with Goodsview in October 2021.

(3) On about 19 October 2021, when Mak called one of the customers, he was told that they would place orders with Yeung’s new company.

(4) As admitted by Yeung and Shing, Mak had complained about the sudden drop in the volume of orders received from 20 to 30 orders a day to just a few orders per day after Yeung left in mid-October 2021.

(5) Mak was informed by some of F Frozen Food’s former customers that Yeung had never mentioned the change of ownership to them; they therefore did not believe Mak was the new owner.

(6) According to Ms Wong, Goodsview’s storage and food processing workshop in Yuen Long, which she assisted Yeung in setting up, was set up in the second half of October 2021. This coincides with F Food HK’s sudden drop in sales.

124.  As I have no reason to disbelief Ms Wong, I am satisfied that Yeung has been diverting F Food HK’s businesses to Goodsview during the transition period, when Yeung was supposed to assist F Food HK with the Business, and thereafter, in breach of clauses 1.2 and 2.3 of the Contract, in that Yeung failed to perform the Defendants’ duties prescribed thereunder, or perform the same honestly and with integrity.

Poaching former staff/employees and transport contractors of the Business

125.  Regarding the Defendants’ duty, under clauses 2.5 and 2.6 of the Contract, to assist F Food HK in retaining F Frozen Food’s employees and transportation contractors after the transfer, not only has Yeung done nothing to help F Food HK retain the existing employees and transport drivers, in blatant disregard of the Defendants’ obligations under the Contract, he actually solicited the ex-employees and transport drivers to work for Goodsview; as a result, most of them left F Food HK shortly after the transfer of the Business and joined Goodsview. I set out the relevant evidence below.

126.  At the time of the transfer of the Business on 1 September 2021, F Frozen Food’s four existing employees, namely two frozen food chefs – 古燕忠 (古師傅) and 師傅阿文 (Lam Sik Man), and two part-time warehouse general workers – 孔詠如 and劉宇星, stayed and became F Food HK’s employees. But soon after, in October 2021, all except 古燕忠 left F Food HK; two of them did not even bother to serve a notice of resignation, they simply disappeared and did not return. At the end, only 古燕忠 remained and continued working for F Food HK.

127.  Mak subsequently learned from Ms Wong that they all worked for Yeung at Goodsview and Goodwill.

128.  Furthermore, on 30 September 2021, the drivers who had originally delivered goods for F Frozen Food and, after the business transfer, for F Food HK, suddenly notified Mak that, starting in October, they would no longer be delivering goods for F Food HK.

129.  It was Ms Wong’s evidence that, shortly after Goodsview was established, Yeung had already arranged for all the former employees of F Frozen Food to be transferred to the new company. In mid-September 2021, Yeung employed two new staff members for F Frozen Food, called Marco and 禮哥. At that time, Yeung asked Ms Wong to contact Marco, while he himself would contact 禮哥, 師傅阿文, 古師傅, and the former transport driver. As a result, except for 古師傅, all former employees  have joined Goodsview. 師傅阿文joined the new company in mid-October. In addition, some former sales staff, including Yeung Ka Chai, have also joined Goodsview. Meanwhile, I note that Yeung Ka Chai was appointed as a director of Goodwill, which, according to Mak, is Yeung’s company.

130.  Furthermore, Yeung also contacted the suppliers of F Frozen Food and arranged for them to supply goods to Goodsview.

131.  In cross-examination, Ms Wong emphasized that when she attended the workshop in Yuen Long, she saw former F Frozen Food employees working there.

132.  According to the evidence I quoted above, which I accept, Yeung’s act constituted a breach of clauses 2.5 and 2.6 of the Contract.

Failure to cooperate for the transfer of the Licence

133.  It is common ground that the Licence was not transferred to F Food HK; the issue is which party was responsible for such failure.

134.  Pursuant to clause 2.2 of the Contract, the Defendants shall provide the necessary documents for the transfer of the Licence to F Food HK for follow-up, and must cooperate to successfully transfer the Licence.

135.  Mak testified that Yeung did not attend FEHD in person to sign the relevant documents to formally transfer the License from F Frozen Food to F Food HK.

136.  However, Yeung said that the Defendants had in fact performed their part of the agreement. The License was ready to be transferred; it was not done because Mak refused to or did not attend FEHD to complete the necessary paperwork.

137.  Mr Koo submitted that Yeung’s evidence was bare and self-serving assertions; there is no documentary evidence in support of such assertions. He further pointed out that, in fact, the following contemporaneous WhatsApp messages between Mak and Yeung contradict Yeung’s evidence.

(1) In a message from Yeung to Mak on 14 October 2021, while Yeung demanded the remaining contract sum of $250,000 from Mak, he did not say the Licence was ready to be transferred pending Mak’s or F Food HK’s signature.

(2) In the two further messages between them on 2 and 3 November 2021, there was also no suggestion from Yeung that the transfer of the Licence was pending for Mak’s action. In the messages, Yeung referred to Mak as “Ken哥”. The relevant messages were:

(a) Message from Yeung to Mak on 2 October 2021 at 14:45: “Ken哥，佢真係日日都追我㗎，佢日日都追我㗎，我冇吹水呃你。所以呢，我想呢你盡快諗一諗，諗一諗，因為我都唔想佢係咁不停咁樣追我囉。”

(b) Message from Yeung to Mak on 3 October 2021 at 14:29: “Ken哥，你收到我個WhatsApp你覆個電話畀我吖，因為食環署又打電話俾我，佢話佢今個禮拜內必須要完成㗎，如果唔係會將呢個File close咗，咁我就擔心有個問題出現囉，因為吓你唔賣畀我嘅話，就一定要轉，如果你話你賣畀我嘅話，我就諗住慳返啲錢，咁你睇你個意思係點樣？但係一定要喺今個禮拜五之前要完成，因為佢係咁追我上去簽名。”

(c) Reply message from Mak to Yeung on 3 October 2021 at 17:31: “喂，唔好意思啊，我啱啱忙完，er … 我朋友嗰度佢仲要考慮吓，我同佢講緊㗎啦，你畀少少時間我㖭啦，唔該你。”

138.  Those contemporaneous messages support Mak’s evidence, which stated that, at that time, Yeung proposed to buy back the Licence, and that if it was accepted by F Food HK, Yeung would not go to sign the transfer papers at FEHD.

139.  In any event, the end of the first message from Yeung on 3 October 2021 clearly shows that, at that point, it was Yeung, not Mak, who needed to go to FEHD to sign the necessary papers for the transfer of the Licence. There is no evidence from Yeung that he has ever done it.

140.  In the circumstances, I find that, for the purposes of clause 2.2 of the Contract, the Defendants failed to co-operate to effect the transfer of the Licence to F Food HK.

Consequence of the breaches

141.  Because of the Defendants’ wrongful acts mentioned above, in particular their failure to transfer the Licence to F Food H as promised, and Yeung’s misappropriation of F Food HK’s stocks and receivables to be discussed below, F Food HK was not able to continue operating the Business. It therefore had no choice but to cut its losses by finding someone willing to take over the frozen food wholesale business.

142.  At the time, through the introduction of Mr 陳志杰 (“Mr Chan”), who was the owner of Mou Hing Global Foods Company Limited, Mak met Ms 葉秀萍 (“Ms Yip”), who expressed interest in buying a food processing factory. Mr Chan and Ms Yip then inspected Workshop 1717 and Workshop 2801 together with Mak.

143.  Afterwards, Mak and Ms Yip met several times to discuss. Finally, they reached an oral agreement under which Ms Yip agreed to take over the tenancy of Workshops 1717 and 2801, together with the internal fixtures, fittings, tools, and equipment, for $200,000. The sale did not include the Licence or any government licence for food processing work inside. Therefore, Ms Yip needed to apply for a new food processing licence for those workshops.

144.  Furthermore, the sale to Ms Yip did not include F Food HK’s existing business or customers, as there was not much left at that stage due to Yeung’s wrongful act. Mak therefore only promised to assist Ms Yip in taking over the business and that he would not approach the former customers in the future.

145.  Pursuant to their oral agreement, Ms Yip paid Mak $200,000 on 20 January 2022. The payment was supported by documentary evidence.

F4. Remedies for fraudulent misrepresentation and breach of contract

Rescission is inappropriate

146.  One of the remedies claimed by F Food HK is rescission of the Contract.

147.  The general rule is that there shall be no rescission if what was passed under the contract cannot be restored.

“… a necessary precondition to rescission being available is that performance of the contract can in fact be reversed: and so, for example, the representee must be able to give back to the representor whatever he received under the contract.” Cartwright, Misrepresentation, Mistake and Non-disclosure at §4-56”

148.  In the present case, the leases for Workshop 1717 and Workshop 2801 were transferred to Ms Yip (or her company) under the oral agreement; they cannot be restored to F Frozen Food. Although the Defendants may be properly compensated for the value of the food processing tools and equipment passed under the Contract, if necessary, I am of the view that F Frozen Food’s entitlement to Workshop 1717 and Workshop 2801 (including the associated chances of renewal of tenancy of the Workshops) cannot be quantified in money terms and be replaced with any form of financial compensation.

149.  As such, it is inappropriate to grant rescission in the present circumstances.

Damages in lieu of rescission

150.  It is trite that, if rescission is not available, the victim (ie the representee) of a fraudulent misrepresentation is entitled to damages (in lieu), which is to be measured as the actual damage directly flowing from the fraudulent misrepresentation.

“It is not an action for breach of contract, and, therefore, no damages in respect of prospective gains which the person contracting was entitled by his contract to expect come in, but it is an action of tort—it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket; and therefore, prima facie, the highest limit of his damages is the whole extent of his loss, and that loss is measured by the money which was in his pocket and is now in the pocket of the company. That is the ultimate, final, highest standard of his loss.” McGregor on Damages, 22^nd ed at §55-004

“… the measure of damages is to be based on the actual damage directly flowing from the fraudulent inducement” Clark v Urquhart [1930] A.C. 28, per Lord Atkin at p.68

151.  Pursuant to the terms of the Contract, F Food HK made the following payments to the Defendants:

(1) A down payment of $450,000, representing 30% of the contract sum, was made at the time of the Provisional Agreement;

(2) A further payment of $600,000, representing 40% of the Contract sum, was made at the time the Contract was signed;

(3) $23,200 as a rental deposit for the transfer of the tenancy for Workshop 1717 and Workshop 2801; and

(4) $150,000 to buy out the existing stock of F Frozen Food.[4]

As a matter of course, had Mak and Cheung not been induced to enter the Contract, they would not have agreed to pay the rental deposit for Workshop 1717 and Workshop 2801 or to purchase the existing stock of F Frozen Food.

152.  Further, on 2 October 2021, Mak paid Yeung an additional $200,000. The parties dispute the nature of this payment: Mak contended it was made at Yeung's request to assist with Yeung’s cash flow, while Yeung maintained that the payment signified Mak’s confirmation that the Defendants had fulfilled the contractual requirement concerning the transfer of the Licence.

153.  As both parties accept that this amount must, in any event, be treated as part of the contract sum paid by F Food HK/Mak, it is unnecessary for me to rule on this issue for present purposes. However, if required, I would prefer the evidence provided by Mak.

154.  Regarding the operation of the Business after 1 September 2021, Mak’s evidence was that it was a losing business (due to the Defendants’ wrongful acts), and that he had no choice but to sell it to cut his losses. However, F Food HK adduced no evidence as to the extent of the further losses suffered in the operation of the Business.

155.  Hence, without considering the losses suffered in the operation of the Business, the actual loss suffered by F Food HK directly flowing out from the fraudulent inducement would be a total sum of $1,223,200.[5]

156.  However, I note that, both in F Food HK’s pleadings and closing submissions, F Food HK does not seek to recover the $23,200 deposit paid for the transfer of the workshops’ lease. I therefore hold that F Food HK is entitled to damages for fraudulent misrepresentation in the sum of $1,200,000.

Contractual damages

157.  Mr Koo submitted that F Food HK’s claim for contractual damages is raised as an alternative to its fraudulent misrepresentation claim.

158.  As I have found in favour of F Food HK on its fraudulent misrepresentation claim, it is, in principle, not necessary for me to deal with the contractual damages claim.

159.  However, for the sake of completeness, if I am wrong on the misrepresentation claim, as I have found in section F3 above that the Defendants were also in breach of the Contract, F Food HK would be entitled to damages for breach of contract.

160.  As explained by Deputy Judge Marlene Ng (as she then was) in Ng Chi Kwan, Danny Summer and Another v Yeung Yiu Kwan and Another [2014] 5 HKLRD 744, if a claimant cannot prove what his profits would have been had the contract not been breached, he may elect to claim expenditure which has been thrown away, or wasted, by reasons of the breach.

“119. Contract principles

Robinson v Harman held that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. But such damages should not put the claimant in a better position than he would have been in had the contract been performed. In my view, protection of the expectation interest that takes into account both expected profits and necessary reliance expenses on the contract being performed to compensate the loss of bargain is the obvious and justified measure of damages for breach of contract since loss of profits calculated this way would put the claimant in the position he would have been in.

120. The law of damages permits the claimant on breach of contract to seek damages on reliance basis, and to “elect” to claim damages by reference to expenses he incurred in reliance on the contract being performed. In Anglia Television Ltd v Reed, Denning MR said:

“It seems to me that a plaintiff in such a case as this has an election: he can either claim for loss of profits; or for his wasted expenditure. But he must elect between them. He cannot claim both. If he has not suffered any loss of profit — or if he cannot prove what his profits would have been — he can claim in the alternative the expenditure which has been thrown away, that is, wasted by reasons of the breach.

…

122. In CCC Films (London) Ltd, Hutchison J went on to stress that where the claimant claims reliance damages for breach of contract, the burden of proving he has made a bad bargain, ie he would not have recouped his expenses if the contract had been performed, is on the defendant:

“…… This is because …… in the majority of contested cases impossibility of proof of [a loss of net profit] would probably involve like impossibility in the case of [proving in general terms the probability of sufficient returns to cover expenditure]. It appears to me to be eminently fair that in such cases where the plaintiff has by the defendant’s breach been prevented from exploiting the chattel or the right contracted for and, therefore, putting to the test the question of whether he would have recouped his expenditure, the general rule as to the onus of proof of damage should be modified in this manner. (my emphasis)

Recently, in Mega Yield International Holdings Ltd v Fonfair Co Ltd, the Court of Appeal accepted the authorities provided a rational and sensible explanation for the view the burden should be on the defendant, and in particular referred to L Albert & Son v Armstrong Rubber Co, a decision by Chief Judge Learned Hand of the US Court of Appeals, Second Circuit as follows:

“… It is often very hard to learn what the value of the performance would have been; and it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other. On principle therefore the proper solution would seem to be that the promisee may recover his outlay in preparation for the performance, subject to the privilege of the promisor to reduce it by as much as he can show that the promisee would have lost, if the contract had been performed. (my emphasis)” (emphases added)

161.  Mr Koo submitted that there is no evidence showing F Food HK’s loss of profit, and as such, if necessary, F Food HK would seek damages for breach of contract for the total sum of HK$1,200,000, being the contract price paid ($1,250,000) plus $150,000 for the inventory minus the $200,000 received from Ms Yip.

162.  The breaches committed by the Defendants went to the root of the Contract; I see no reason why F Food HK is not entitled to have the damages measured on reliance basis, if F Food HK so elects; I therefore further hold that, as an alternative to damages for fraudulent misrepresentation, F Food HK is also entitled to damages for breach of contract in the sum of $1,200,000.

Declaratory relief is unnecessary

163.  F Food HK also seeks a declaration that the Defendants were in breach of the Contract.

164.  The court’s power to make a binding declaration is a discretionary power. In exercising its discretion, the court will consider whether any useful purpose will be served by granting the declaration sought. If a declaration would not serve any practical purpose, this will weigh heavily in the scales against the grant of declaratory relief. It was held by Deputy Judge Jin Pao SC in Equis (Hong Kong) Limited v George Allen Cowan [2021] HKCFI 768, at §39, that:

“If a declaration would not serve any practical purpose, this will weigh heavily in the scales against the grant of declaratory relief. A practical purpose means that the declaration should “solve a real difficulty” with which the claimant is faced, but there is no requirement that a claimant must be in a position to demonstrate that he will benefit in a material or tangible way as a result of the declaration: Zamir & Woolf: The Declaratory Judgment (4^th ed) at §4-99 & 4-104.”

165.  In the present case, I have already found that the Defendants were in breach of the Contract and held that F Food HK is, thereby, entitled to damages. F Food HK has sold Workshop 1717 and Workshop 2801, together with the tools and equipment therein, to Ms Yip back in January 2022. There is no live issue, as I can see, between the parties beyond money compensation.

166.  A declaration that the Defendants were in breach simply states the legal conclusion this court has already reached; it adds little, if any, where the judgment already awards damages on that basis. In my view, a further declaration to the same effect is duplicative and is thus unnecessary.

F5. Misappropriation and Conversion

167.  This claim consists of two parts: (a) the misappropriation of frozen food receivables belonging to F Food HK for goods supplied to its customers from September to October 2021, and (b) the conversion of goods belonging to F Food HK valued at over $200,000.

168.  With respect to the claim of misappropriation of receivables owed to F Food HK, the relevant evidence is set out in paragraphs 52 to 123 of Mak’s witness statement, which I do not repeat in this judgment. In summary, Mak’s evidence is that for the goods supplied by F Food HK to its customers in September and October 2021, Yeung, without the knowledge or permission of F Food HK, wrongfully and dishonestly instructed customers to either pay him directly or deposit the money into his wife’s or the sales team’s personal accounts. Many customers complied. After receiving the payments, Yeung failed to account for the money or return it to F Food HK.

169.  The payments made by various customers and the corresponding amounts misappropriated by Yeung, to varying degrees, are supported by documentary records. Mr Koo has helpfully summarised these in Schedule 2 of his written closing submissions. The total misappropriated amount is $66,396.00. Mr Koo submitted that this claim is based on documentary evidence compiled by F Food HK, and therefore represents the lower bound of the actual sum misappropriated by Yeung.

170.  Yeung does not dispute the amounts stated by Mak; his only defence is that he repaid Mak the alleged sums in cash, but there is no documentary record of any such repayments. I do not accept Yeung’s evidence. It is commercially illogical for Yeung to have repaid various sums to Mak on different days in cash, rather than by bank transfer with traceable payment records. Besides, Yeung’s answer under cross-examination, that the customers paid him in cash and he passed it over to Mak on the same day, is inconsistent with the documentary evidence, in which Yeung asked the customers to deposit the money into his account or his wife’s. It also contradicts what Yeung said in his WhatsApp message dated 14 October 2021. Lastly, Yeung’s assertion of cash repayments, given in cross-examination, was not mentioned in his witness statements or the Defendants’ pleadings[6]. It is likely to be another on-the-spot fabrication; it is therefore rejected.

171.  On balance, I am satisfied that Yeung has wrongfully and dishonestly misappropriated receivables owed to F Food HK in the amount of $66,396.00. Accordingly, I find Yeung liable to repay F Food HK this sum.

172.  Regarding F Food HK’s claim for the stolen frozen foods, valued at over $200,000, F Food HK relied solely on Ms Wong’s verbal evidence, who stated: “他 [Yeung] 並曾親口告訴我說， 9月1號老友記冷凍就不再是他的，是屬於新買家的，而他要協助老友記冷凍的買家一個月，在這一個月內，新買家不懂打理生意，所以，他已悄悄地甘取走了新買家不少凍肉，為數20多萬港元…”[7] (He [Yeung] personally told me that, as of September 1, the frozen food business no longer belonged to him but to the new owner. He said he would assist the new owner of the business for a month, during which the new owner was inexperienced, so he secretly took away a considerable amount of frozen meat worth over HK$200,000 from the new owner…).

173.  During cross-examination, Ms Wong explained that Yeung was able to misappropriate F Food HK’s frozen foods by destroying the invoices that recorded their supply. This enabled him to pocket the customers’ payments without leaving any trace.

174.  Yeung admitted during cross-examination that it was possible to steal frozen foods from F Food HK in the manner Ms Wong described. However, this does not alter the fact that Ms Wong does not know whether Yeung actually did what he claimed.

175.  As the claimant, F Food HK bears the burden of proof. Although Mak indicated that there were no complete or systematic records of frozen food purchases, sales, or inventory, F Food HK did have some invoices and delivery notes, albeit incomplete. In my view, after taking stock of its remaining inventory, F Food HK should have been able to show, at the very least, that some frozen foods were unaccounted for. However, it failed to adduce any evidence in that regard.

176.  In view of the above, I hold that F Food HK has failed to discharge its burden of proof. Accordingly, its claim for the alleged stolen frozen foods is disallowed.

F6. Exemplary damages

177.  In F Food HK’s Re-Amended Statement of Claim, F Food HK claimed exemplary damages to be assessed. In Mr Koo’s closing submissions, he sought exemplary damages of no less than $300,000.

178.  The principles governing the award of exemplary damages were explained in Promo International Ltd v Chae Man Tock and another [2018] HKCFI 284, at §§223 to 227:

“223. In the case of Rookes v Barnard [1964] UKHL 1, the House of Lords laid down the three situations where exemplary damages may be awarded. This includes:-

(a) Oppressive, arbitrary or unconstitutional actions by the servants of government.

(b) Where the defendant's conduct was ‘calculated’ to make a profit for himself.

(c) Where a statute expressly authorises the same.

224. The above has been cited with approval by the Hong Kong Courts, in particular by the Court of Appeal in Allan v Ng & Co (a firm) [2012] 2 HKLRD 160[8].

225. As said by Kwan JA in the above case, the rationale for exemplary damages is not to compensate but to punish. They are additional to an award which is intended to compensate a plaintiff fully for the loss he has suffered, both pecuniary and non-pecuniary[9]. Kwan JA further cited an extract from Lord Nicholl’s judgment in A v Bottrill [2002] UKPC 44 [2003] 1 AC 449 [2002] 3 WLR 1406, which included the following[10]:

“… In the ordinary course the appropriate response of a court to the commission of a tort is to require the wrongdoer to make good the wronged person’s loss, so far as a payment of money can achieve this. In appropriate circumstances this may include aggravated damages. Exceptionally a defendant’s conduct in committing a civil wrong is so outrageous that an order for payment of compensation is not an adequate response. Something more is needed from the court, to demonstrate that such conduct is altogether unacceptable to society. The wrongdoer may be ordered to make a further payment, by way of condemnation and punishment.”

226. However, Kwan JA went on to say that it is firstly important to distinguish the different roles of compensatory and exemplary damages and that it is easy to lose sight of this distinction if the court is to make a “combined award” of compensatory and exemplary damages and that the second important thing which follows from the rationale is that exemplary damages are a remedy of last resort. She then referred to the “if, but only if” test mentioned by Lord Devlin in Rookes v Barnard, the effect of which is that if, but only if, the compensatory award is inadequate to punish the defendant for his outrageous conduct, then the court can award some larger sum to mark disapproval of such conduct and to deter the defendant from repeating the conduct.” (emphasis added)

179.  In cases involving deceit, particularly when a compensatory award is inadequate to punish the defendant for his outrageous conduct, it would be appropriate to award exemplary damages.

“In principle exemplary damages can be awarded in an action of deceit, although such an award is exceptional. … an award of exemplary damages may therefore be made in a claim in deceit if the case fulfils the general requirements for such an award. Exemplary damages may be awarded … where the defendant’s conduct was calculated by him to make a profit for himself which may well exceed the compensation payable to the claimant. In relation to this second class of case, what is required is an element of calculation—but not a purely financial calculation—by the defendant, pursuant to which the defendant decides that it is more advantageous to act in cynical disregard of the claimant’s rights, in order to achieve his objective, than to act in a lawful fashion; in such a case exemplary damages can be awarded, essentially to make the point that tort does not pay. It is perhaps natural that the courts should have contemplated the possibility of an award of exemplary damages in deceit: there are other rules within deceit which, by comparison with other torts, impose a heavier liability on the representor for the very reason that he was fraudulent.” (emphasis added) Cartwright, Misrepresentation, Mistake and Non-disclosure, 7^th ed, §5-43

180.  For the purposes of the exemplary damages claim, the following conduct by the Defendants, particularly Yeung, is relevant for the court’s consideration:

(1) The Defendants never intended to cease their frozen food wholesale business. Prior to the transfer of the Business, Yeung had already taken steps to establish a new company, ie Goodsview, to continue operating the same wholesale business.

(2) In the advertisement for the sale of the Business in July 2021, the Defendants, seeking to attract potential buyers, represented that the monthly turnover exceeded $2.3 million and that the net profit exceeded $200,000 per month. They claimed the Business had a large and stable client base, that all existing staff would remain to ensure a smooth transition, and that the Business offered high profitability and a short payback period. Furthermore, without any genuine intention, they stated that they would assist the new owner during the initial phase to ensure a seamless transition.

(3) During negotiations, contrary to his true intentions, Yeung further promised Mak and Cheung that he would not engage in a similar frozen-food wholesale business. The Defendants even agreed to an express term in the Contract prohibiting them from engaging in such a business for 84 months after the transfer. However, they never intended to comply, as Yeung had already instructed Ms Wong to set up a new company expressly to continue the same business.

(4) Yeung also took advantage of the transition period — when he was supposed to assist F Food HK in running the Business — to divert business from F Food HK to his new company, Goodsview, in blatant breach of his contractual obligations.

(5) Yeung also intentionally misled customers by claiming it was merely a name change for the Business, when in reality it was a change of ownership. He further lied to customers, stating the change occurred on 1 October 2021 rather than 1 September 2021. With a clear intention to misappropriate F Food HK’s receivables, Yeung asked customers to pay him directly or deposit funds into his, his wife’s, or his sales team’s personal accounts — at that time, the sales team worked for Goodsview. Evidence shows that many customers did accordingly, and Yeung kept the money for himself.

(6) Despite the Defendants’ contractual obligations to transfer the Business and assist F Food HK in retaining its staff and transport contractors, Yeung poached these employees and contractors to work for Goodsview.

(7) As a result of the aforementioned wrongful conduct, once Goodsview became operational in October 2021, F Food HK's daily sales volume dropped from 20–30 orders per day to only a few.

(8) Yeung has shown absolutely no remorse for his actions. In an attempt to discredit Ms Wong — whose evidence was detrimental to the Defendants’ case — and despite contemporaneous WhatsApp records contradicting him, he fabricated false accusations to attack Ms Wong’s character.

(9) Yeung also failed to properly record F Food HK’s business transactions — including purchases of raw materials, sales of frozen foods, and other operating expenses — during September and the first half of October 2021, when F Food HK had entrusted him to manage the Business. As a result, F Food HK (and Mak): (a) could not substantiate the claim for the stolen frozen foods; and (b) was unable to assess, quantify, or prove the financial losses suffered during that period.

(10) Therefore, the actual loss suffered by F Food HK and Mak was likely greater than the amount claimed in this action.

181.  Yeung’s wrongful actions were deliberate and premeditated. He orchestrated the fraudulent scheme in question with the clear intention of making a substantial profit for himself. In addition to the $1.5 million contract price, if the representations in the Advertisement were accurate, he would continue to earn over $200,000 per month in profit.

182.  For these reasons, I am satisfied that a compensatory award of damages to F Food HK is inadequate to punish Yeung for his egregious conduct.

183.  I am therefore of the view that this is an appropriate case for the court to mark its disapproval of Yeung’s conduct and to demonstrate that such conduct is wholly unacceptable to society. Accordingly, the award of exemplary damages against Yeung is justified in these circumstances.

184.  In this regard, Mr Koo, in Schedule 2 of his written closing submissions, helpfully summarized a number of cases addressing the range of exemplary damages awarded by the court in various factual circumstances. He submitted that the most relevant is Mammy Pancake Company Ltd v Carla Day Ltd and Others [2024] 3 HKLRD 17, a case involving breaches of confidentiality and good faith, in which the court awarded exemplary damages of $300,000.

185.  Another case that I find relevant is Willian Allan v Messrs Ng & Co. (A Firm) [2012] 2 HKLRD 160. In Willian Allan, the plaintiff filed for divorce from his wife. The plaintiff’s sister enquired with the defendant firm on the prospect of the defendant firm representing the plaintiff. She disclosed confidential information to the defendant firm, including the plaintiff’s stance on custody and financial issues, and the merits of the wife’s case. She was assured by the defendant that the conversation and contents would be kept confidential. Thereafter, the defendant accepted instruction from and represented the wife in the divorce proceedings. The defendant filed two affidavits in opposition to the plaintiff’s application for an injunction restraining the defendant from acting for the wife.

186.  The first instance judge found that the defendant “… had committed a knowing breach of confidentiality with a view for gain. He prepared his two affidavits knowing that they were false in material particulars for the purpose of enabling him to continue to act for the wife, which he knew was in breach of the solicitors’ code of conduct and would put him in the impossible position of conflict and breach of his duty of confidentiality owed to the plaintiff as quasi-client. As a solicitor and an officer of the court, he had perjured and practised a fraud on the court. Not only was he not entitled to be reimbursed his costs in the injunction application, he should have ceased to act for the wife and paid the plaintiff’s costs of that application. Further, he knew the plaintiff’s mental health was quite unstable when he took out the bankruptcy proceedings against the plaintiff, which did not have the support of the wife, the insurers and one of the partners of the 1 st defendant. The judge found his conduct “extremely outrageous”, “utterly unreasonable”, a persecution of the plaintiff and a contumelious disregard of the plaintiff’s right and held that the court must show its disapproval of such conduct.”

187.  The Court of Appeal found that this was a bad case of perjury and deceit practised by a solicitor on the court. Having taken into consideration that the defendant would face disciplinary proceedings to be brought by the Law Society, the Court of Appeal assessed exemplary damages at $400,000 in 2012.

188.  Returning to the facts of this case, I find that Yeung’s reprehensible conduct amounted to outright fraud perpetrated against F Food HK, Mak, and Cheung. Moreover, the misappropriation of F Food HK’s receivables, as described by Mak, in fact constituted theft. The seriousness of this misconduct exceeds that in Mammy Pancake Company Ltd, though it is (only slightly) less severe than in Willian Allan. Taking inflation since 2012 into account, I award exemplary damages of $380,000 against Yeung, with interest on this sum accruing from the date of this judgment (Willian Allan at §76).

G. COUNTERCLAIM

189.  As I have held above, the Defendants are liable for fraudulent misrepresentation, and F Food HK is entitled to damages in lieu of rescission. It must follow that the Defendants are not entitled to the outstanding sum under the Contract.

190.  Furthermore, I have also found that, in breach of clause 2.2 of the Contract, the Defendants failed to transfer the Licence to F Food HK. Pursuant to clause 6.3, the Defendants were therefore not entitled to the remaining 30% of the contract sum, which includes the outstanding $200,000.

191.  I therefore hold that the Defendants are not entitled to the amount counterclaimed.

192.  While the court has not recited every detail from the witnesses’ statements and oral testimonies, it has duly considered them in reaching the findings set out above.

H. CONCLUSION

193.  In the premises, I make the following orders:

(1) The Defendants (by original action) do jointly and severally pay F Food HK a sum of $1,200,000, as damages for fraudulent misrepresentation and/or breach of contract.

(2) Yeung (the 2^nd Defendant (by original action)) do pay F Food HK a sum of $66,396, as damages for misappropriation.

(3) Yeung (the 2^nd Defendant (by original action)) do pay F Food HK exemplary damages in the sum of $380,000.

(4) The Defendants do pay F Food HK interest on the sum of $1,200,000, running from 12 May 2022 at 1% above the prime rate per annum up to the date of this judgment, and thereafter at judgment rate until payment in full.

(5) Yeung do pay F Food HK interest on the sum of $66,396, running from 12 May 2022 at 1% above the prime rate per annum up to the date of this judgment, and thereafter at judgment rate until payment in full.

(6) Yeung do pay F Food HK interest on the sum of $380,000, running from the date of this judgment at judgment rate until payment in full.

(7) The Defendants’ counterclaim is dismissed.

(8) There be costs order nisi that the Defendants (by original action) are to pay F Food HK and Mak (the 2^nd Defendant by counterclaim) the costs of this action, including all costs reserved. The said costs are to be taxed, if not agreed, with a certificate for counsel.

(9) The above costs order nisi shall become absolute unless an application to vary (by way of summons) is made within 14 days.