LAM YIN KWAN AND OTHERS v. DANNY HOR YAT FUNG AND ANOTHER

HCA1633/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1633 OF 2007

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BETWEEN

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J U D G M E N T

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1.  The plaintiffs’ claim is for damages against the defendants for breach of an oral agreement made between the parties on or about 22 May 2007 which agreement provided for the division of Meda Jewellery Limited (“Meda”) and its subsidiaries between the shareholders thereof.

2.  This judgment, and the trial in respect of which this judgment is given, relates only to the issue of liability as a result of the order of Registrar Au-Yeung dated 24 November 2009 ordering a split trial.

BACKGROUND

3.  Meda was incorporated on 26 March 1997.  Since 3 May 2004, the 1^st and 3^rd plaintiffs and the 2^nd defendant were the directors of Meda.  The 3^rd plaintiff and the 2^nd defendant were both corporate directors acting through the 2^nd plaintiff and 1^st defendant respectively.

4.  As at 26 June 2007, the registered shareholders of Meda were:

(a) the 1^st plaintiff holding 60,000 shares (being 30% shareholding);

(b) the 3^rd plaintiff holding 60,000 shares (being 30% shareholding); and

(c) the 2^nd defendant holding 80,000 shares (being 40% shareholding).

5.  The 3^rd plaintiff and the 2^nd defendant were companies controlled by the 2^nd plaintiff and the 1^st defendant respectively.  The shares held by the 3^rd plaintiff and the 2^nd defendant were held effectively for the 2^nd plaintiff and the 1^st defendant respectively.

6.  At all material times, Meda was run and operated as a quasi-partnership by the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant.

7.  Meda was the sole registered and beneficial shareholder of Anju Jewellery Limited (“Anju”).  Anju, in turn, held all the shares of Forex Creation and Distribution Limited (“Forex”).  The directorship of both Anju and Forex were the same as that of Meda.

8.  Meda also owned and operated a jewellery production factory in the People’s Republic of China (“the Meda PRC Factory”). The 2^nd plaintiff was the legal representative (being a requirement of the PRC authorities) of the Meda PRC Factory.  For the sake of convenience, Meda, Anju, Forex and the Meda PRC Factory will collectively be referred to in this judgment as the Meda Group

THE PLAINTIFFS’ CASE

9.  It is the plaintiffs’ case that since about March 2007, there were disagreements between the parties regarding the management and approaches of the Meda Group.  This culminated in the 1^st plaintiff submitting her letter of 4 May 2007 addressed to the 2^nd plaintiff and the 1^st defendant indicating her intention to withdraw from the Meda Group and to terminate their co-operation.

10.  Thereafter there were discussions held between the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant relating to their splitting up.  These discussions culminated at a meeting held on or about 22 May 2007 when the three of them came to an agreement to split the Meda Group and its assets by 30 June 2007.  The principal terms of that agreement were that by 30 June 2007 the 1^st plaintiff would take over Meda, the 2^nd plaintiff would take over the Meda PRC Factory and the 1^st defendant would take over Anju and Forex.

11.  As for the mechanism to carry the principal terms above into effect, it was also agreed between them that:

(a) Meda and the Meda PRC Factory would terminate the employment of their then employees on or before 30 June 2007, and that any of the companies within the Meda Group before its splitting, may, after the split choose to re-employ any such employees as it wish;

(b) Meda would sell off its registered office in Hunghom (“the Property”) with the net sale proceeds to be injected into the pool of assets (“the Pool of Assets”) to be eventually shared between the parties in accordance with the agreed terms (“the Assets Sharing Terms”);

(c) pursuant to the Assets Sharing Terms:

(1) the Pool of Assets to be formed would comprise all the assets of Meda, Anju and Forex and all the inventories and stock kept by the Meda PRC Factory for Meda, Anju and Forex;

(2) the Pool of Assets after deducting all liabilities owed by Meda, Anju, Forex and the Meda PRC Factory as at 30 June 2007 (“the Pool of Liabilities”) would be shared among the shareholders in proportion to their respective shareholdings in Meda;

(3) the inventories and stock with the Pool of Assets would be shared in kind as soon as practicable after 30 June 2007;

(4) the other assets (i.e. cash, bank balance, account receivables and net sale proceeds of the Property) would be shared only after the amounts of cash actually received exceeded the total amount of the Pool of Liabilities;

(d) the receivables arising from certain specific orders of Meda which had delivery dates beyond 30 June 2007 would be deemed to form part of the Pool of Assets to be shared in accordance with the Assets Sharing Terms;

(e) the 1^st plaintiff, after taking over the ownership of Meda, would take over its existing customer accounts.  The 1^st plaintiff undertook that upon her becoming the sole shareholder of Meda, she would not entice away any of the then existing customers of Anju and Forex for a period of one year from 30 June 2007;

(f) the 1^st defendant, after obtaining ownership of Anju and Forex, would take over its existing customer accounts;

(g) the 2^nd plaintiff, after taking over the Meda PRC Factory, would be at liberty to receive production orders from Meda, Anju, Forex as well as any other third parties; and

(h) the parties would do all such things necessary to put the terms of the Agreement into effect.

12.  It is also the plaintiff’s case that those terms concluded between the parties pursuant to the Agreement was confirmed and evidenced in writing by emails respectively issued by the 1^st plaintiff, the 2^nd plaintiff and also by the 1^st defendant notifying some of the more important clients of their decision to split up the Meda Group in the way agreed between them.

13.  Moreover, various steps were taken by the parties in late May and June 2007 for the purpose of carrying out the splitting up of the Meda Group in accordance with the terms of the Agreement.  Such steps included:

(a) sale of the Property on 25 May 2007;

(b) laying off or steps taken to lay off the staff of Meda by issuing letters of termination dated 31 May 2007 to some staff of Meda and informing the other staff of Meda of their termination of employment by the end of June 2007 as well as calculating the redundancy payment of the employees of the Meda PRC Factory; and

(c) carrying out of stock-taking exercise and preparing the inventory report of June 2007.

14.  It is the plaintiffs’ case that without any forewarning, and despite all that was done in preparation of the splitting up of the Meda Group as per the Agreement, the 1^st defendant suddenly caused the 2^nd defendant to present a winding-up petition of Meda (“the Petition”) in HCCW286/2007 on 26 June 2007 on the grounds of breakdown of mutual trust and confidence between the shareholders.

15.  The plaintiffs say that this constituted a clear breach of the Agreement in that it effectively prevented the parties from carrying out the splitting up of the Meda Group in the manner agreed and in particular prevented the 1^st plaintiff from taking over Meda.

16.  By letter dated 25 July 2007, the plaintiffs, by their solicitors, demanded the defendants to withdraw the Petition and to perform the Agreement, but the defendants refused to withdraw same.

17.  As a result, the plaintiffs made a commercial decision not to oppose the Petition and not to seek specific performance of the Agreement, but instead expressly reserved their rights to claim damages against the defendants for wrongful breach of the Agreement.

18.  In the circumstances, a winding-up order was made on the Petition on 5 September 2007 whereupon Meda was wound up.

THE DEFENCE CASE

19.  The first line of defence raised by the defendants was that at the meeting on 22 May 2007, the parties had reached “certain rough understanding” between them as to division of the Meda Group but there was no concrete agreement arrived at by them as there were still various outstanding matters to be ascertained, to be verified or to be confirmed.  Therefore there was no concluded agreement between the parties as to the splitting up of the Meda Group.

20.  Secondly, even if it was found that there was anything agreed between the parties, it was an incomplete agreement and/or was so vague or uncertain that it lacked contractual force.

21.  At the initial stages, it was also pleaded by the defendants that by consenting to the winding-up of Meda pursuant to the Petition, the plaintiffs had waived such rights which the plaintiffs may have had under the Agreement and cannot now claim damages for breach of same.  However, this defence of waiver was not pursued at trial and counsel for the defendants did inform the court when opening the defence case that this defence of waiver has been abandoned by the defendants for all intents and purposes.

22.  The crux of the evidence from the 1^st defendant relating to the main issue in this dispute can be summarized as follows:

(a) at the meeting on 22 May 2007, there was only a rough understanding between them that the Meda Group would be divided such that the 1^st plaintiff take over Meda, the 2^nd plaintiff take over the Meda PRC Factory and the 1^st defendant would take over Anju and Forex;

(b) at the same meeting the 1^st defendant demanded compensation to be paid to him for giving up the goodwill of Meda but no agreement had been reached on this;

(c) the emails sent by the 1^st defendant to the customers after 22 May 2007informing them that the Meda Group would be split up was done by the 1^st defendant to test the reactions of the customers and out of courtesy to inform them when there would be change in the Meda Group and the 1^st defendant would explain more fully to them when he met them later at the Las Vegas fair; and

(d) after the 1^st defendant returned from the Las Vegas fair and on 7 June 2007 when he discovered the emails from the 1^st plaintiff to Christine Lloyd sent on 5 June 2007, the 1^st defendant held back any further discussion with the 1^st and 2^nd plaintiffs because he thought that the 1^st plaintiff was stealing customers away from Anju and Forex contrary to the rough understanding reached on 22 May 2007.  The 1^st defendant wanted to find out more before confronting the 1^st and 2^nd plaintiffs on the matter.

THE ISSUES

23.  The first issue that needs to be decided is what if any agreement was reached between the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant relating to the split up or division of the Meda Group.

24.  This is purely a question of fact and the findings to be made from all of the evidence adduced.  As such the credibility of the witnesses will be of the utmost importance.

25.  The second issue, depending on the findings to be made on the first issue, is whether on such findings, there was or was not a contractually and legally binding and enforceable agreement which has been reached by them.

26.  This second issue is a mixed question of law and fact.

27.  A third issue raised by the plaintiffs is that if the first and second issues are found against the plaintiff, whether or not the doctrine of estoppel by convention applies such that the defendants are debarred from denying that a binding and enforceable agreement for the splitting of the Meda Group was in existence?

THE EVIDENCE

28.  The plaintiffs called six witnesses to give evidence in the following order:

(a) the 1^st plaintiff, Alice Lam Yin Kwan;

(b) Ms Victoria Wieck;

(c) Ms Christine Lloyd;

(d) Mr Xue Zhi Wei;

(e) the 2^nd plaintiff, Leung Kam Hei; and

(f) Ms Sheri Leung Sin Yee.

29.  The 1^st and 2^nd plaintiffs’ evidence related to matters leading up to the decision of the 1^st plaintiff to pull out from their co-operation in the Meda Group, the subsequent discussion and negotiations between them in May and ultimately the Agreement and the terms thereof reached between them as well as the partial implementation of those terms by the sale of the Property and the termination of the staff of Meda and those of the Meda PRC Factory.

30.  The evidence from Victoria Wieck, a customer of Meda, and Christine Lloyd, a designer engaged by the 1^st defendant to make designs for Meda related to what had been told to them as to the splitting up of the Meda Group.

31.  The evidence from Sheri Leung, a staff of Meda, and Xue Zhi Wei, a staff of the Meda PRC Factory related to what they had been told as regards the termination of the staff of Meda and of the Meda PRC Factory at the end June 2007 including the payment of redundancy payment.

32.  The defendants called the 1^st defendant, Danny Hor Yat Fung and another witness Chan Fook Wing.

33.  The evidence from the 1^st defendant has already been summarized above.

34.  The evidence of Chan Fook Wing, an agent of Stable Corporation Limited to whom the Property was sold, relate to the negotiations and discussions leading up to the sale of the Property and the signing of a Provisional Sale and Purchase dated 25 May 2007.

35.  Since all the witnesses, both for the plaintiffs and the defendants, adopted their witness statements and supplemental witness statements (where applicable) as their evidence-in-chief, their evidence will not be repeated here in full save to say that those parts of their evidence relevant to the various issues will be referred to when I deal with the assessment of the evidence.

ASSESSMENT OF THE EVIDENCE

36.  The two main witnesses relied on by the plaintiffs were the 1^st and 2^nd plaintiffs, both of whom were directly involved with and present at all the discussions and negotiations with the 1^st defendant between 4 and 22 May 2007 which, the plaintiffs say, culminated in the Agreement.  Both of them gave evidence as to how the Agreement was reached.

37.  It was pointed out by counsel for the defendants that there were inconsistencies and discrepancies in the evidence not only as between the 1^st and 2^nd plaintiffs, but also between what was said by each of them in the witness box and what was stated by each of them in their respective witness statement.

38.  It was submitted by counsel for the defendants that in her oral evidence given from the witness box, the 1^st plaintiff had said that between 4 and 21 May 2007, the three of them had agreed that the Property had to be sold and also agreed that the division of the assets of the Meda Group would be divided between the shareholders in accordance with their respective shareholdings.  However, the other terms of the Agreement were only agreed between them on 22 May 2007.

39.  On the other hand, the evidence given by the 2^nd plaintiff was that there were some 4 meetings of the three of them between 4 and 22 May 2007.  On 22 May 2007, the only term which they agreed on that day was who would take which company finally.  All the other terms had been agreed prior to 21 May 2007.

40.  It was therefore submitted by counsel for the defendants that the evidence given by the 1^st and 2^nd plaintiffs contradicted each other in so far as the timing as to when the individual terms were agreed between the three of them.

41.  It was also submitted by counsel for the defendants that in their witness statements, both the 1^st and 2^nd plaintiffs had stated that all the terms of the Agreement were agreed by the parties on 22 May 2007.  Therefore what is stated by them in their respective witness statements also contradict their oral evidence.

42.  Looking at both the witness statements of the 1^st and 2^nd defendants, while accepting that on one reading of their witness statements, it is possible to infer that all the terms of the Agreement were agreed between the three of them at the meeting on 22 May 2007, however, it remains a fact that there is no clear and express statement to that effect.  On the other hand, both the witness statements of the 1^st and 2^nd plaintiffs did expressly state that “the parties began to negotiate and explore the possibilities of splitting their partnership in the operation and management of the Meda Group in or about mid May 2007.”

43.  In those circumstances, whatever agreement may have been made as to the sale of the Property and or the distribution as to the assets of the Meda Group in accordance with the ratio of shareholding, if that had been agreed prior to 21 May 2007, could only have been conditional upon final agreement as to how the companies within the Meda Group should be divided among the three of them.

44.  Looked at in this way, until there was final agreement as to who would take which of the companies within the Meda Group, only then would the other terms of the Agreement fall into place even though they may have been discussed or conditionally agreed before the 22 May 2007.

45.  While it may well be true that the wordings of the witness statements of both the 1^st and 2^nd plaintiffs could have been better drafted by their solicitors, I do not accept the suggestion by counsel for the defendants that the evidence of the 1^st and 2^nd plaintiffs are respectively contradicted by their own witness statement.

46.  As for the discrepancies pointed out by defence counsel in respect of the oral evidence given by the 1^st and the 2^nd plaintiffs as to the timing when each of the terms of the Agreement was discussed and agreed, admittedly there are discrepancies between the 1^st and 2^nd plaintiffs in their evidence.  However, when one takes into account the fact that the negotiations and discussions were all conducted orally and with no notes or record made at the time, plus the fact that there were some 4 meetings which took place between 4 and 22 May 2007 and that the 1^st and 2^nd plaintiffs were asked to recall the precise timing of each of the term when it was agreed over three years later (the trial being in December 2010), it does not surprise me the least that there will be some discrepancies in their evidence as to the timing when each of the oral terms were agreed upon. 

47.  Such discrepancies can only be attributed to poor memory rather than untruthfulness on the part of the 1^st and 2^nd plaintiffs in this matter. 

48.  In this respect, a pleading point was also taken by counsel for the defence that the pleaded case of the plaintiffs was that all the terms of the Agreement were agreed by the parties on 22 May 2007 which is contrary to the oral evidence now given by the 1^st and 2^nd plaintiffs. The short answer to that submission by defence counsel must be that it is a cardinal rule of pleadings that only facts and not evidence need be pleaded.  What was pleaded by the plaintiffs was that the Agreement was reached or concluded by 22 May 2007 and the full terms of the Agreement was then particularized in detail.  There can be no objection to the way in which the Agreement was pleaded in that manner by the plaintiffs.  There is no requirement to plead evidence and the evidence which is later given is to support the fact pleaded.

49.  A further criticism made by counsel for the defendants in respect of the evidence of the 1^st plaintiff was that it was pointed out by counsel for the defendants that, firstly, in the winding-up proceedings of Meda, in the plaintiffs’ solicitor’s letter dated 29 June 2007, no mention was made at all of any agreement for splitting up of the Meda Group by the solicitors when opposing the petition for winding-up.  Secondly, in two of the affirmations filed by the 1^st plaintiff in relation to the winding-up proceedings of Meda, the 1^st plaintiff, although she did mention the Agreement (in her first affirmation) there it was only stated the manner in which the Meda Group would be split between the three shareholders without any of the other terms agreed being stated.  Later in her sixth affirmation filed in the winding-up proceedings, the 1^st plaintiff did give more of the terms alleged to have been agreed but still failed to set out the complete terms of such Agreement which were only stated by her in her witness statement herein and in the Statement of Claim.

50.  On this basis, counsel for the defendants challenge the truthfulness and the reliability of what is now stated by the plaintiffs to be the complete terms of the Agreement and whether those were in fact actually agreed by them at the time, the implication being that those alleged terms had been added to and expanded by the plaintiffs with the passage of time.

51.  An explanation was given by the 1^st plaintiff in cross-examination as to the fact that the solicitors letter did not state that the Agreement had been made between the parties.  Her explanation was that at the time, there were orders which had to be fulfilled within a short time of the presentation of the petition which came so suddenly that they did not know what to do and was trying to find a way to resolve the petition.  In those circumstances they may have missed telling the solicitors of the Agreement.

52.  As for the two affirmations made by the 1^st plaintiff, I accept the submission by counsel for the plaintiffs that the 1^st affirmation of the 1^st plaintiff in the winding-up proceedings was filed in support of an application for a validation order and therefore it was unnecessary to set out the full terms of the Agreement.  Likewise the 6^th affirmation of the 1^st plaintiff in the winding-up proceedings was filed to explain to the Companies court why they had decided not to oppose the petition, but rather would seek to recover damages for the wrongful breach of the Agreement.  In this respect, the extensiveness of the evidence to be contained in an affirmation is really a matter to be decided by the solicitor (rather than by the affirmant) in whose mind the purpose for which that particular affirmation is filed would be of paramount consideration when deciding that matter.

53.  Possibly the only valid criticism that can be said of the evidence coming from the 1^st plaintiff, if criticism is the correct way of describing it, is that she may have been genuinely mistaken as to the status of Amkor Pacific orders as being a brand which would come within the customers of Meda, and therefore she was entitled to deal with under the Agreement given her undertaking not to encroach upon the customers of Anju and Forex.  This is a matter which will be dealt with in greater detail in a later part of this judgment, but for present purpose it ought to be noted that the evidence relating to this aspect of the case would not cause the slightest doubt in my mind that the 1^st plaintiff was an honest witness and giving truthful evidence.

54.  As for the evidence given by Victoria Wieck and Christine Lloyd were concerned, their evidence were not seriously challenged by the defendants.

55.  Likewise Sheri Leung and Xue Zhi Wei’s evidence were also not seriously challenged by the defendants.

56.  I turn now to deal with the defence evidence.

57.  The first thing to note and the starting point is that there is no dispute between the parties that at the meeting between the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant on 22 May 2007 they had agreed between the three of them that the 1^st plaintiff were to take over Meda, the 2^nd plaintiff to take over the Meda PRC Factory and the 1^st defendant to take over Anju and Forex for the following reasons.

58.  The main difference between them is that the 1^st defendant says that such agreement was only a “rough understanding” (paragraph 36 of his Witness statement) and which was dependent upon the finalization of the accounts and the value of the assets to be ascertained, verified and agreed, and the compensation to be paid by the 1^st plaintiff to the other shareholders which was still to be agreed.

59.  That such an agreement was reached between them is firmly supported by the emails sent by both the 1^st plaintiff and the 1^st defendant to their customers after the meeting on 22 May 2007.  In particular, the email from the 1^st defendant to Victoria Wieck dated the very same day as the meeting (i.e. 2 May 2007) is enlightening and states:

“As Alice stated in her e-mail, Meda Jewellery Limited is currently under going massive changes and Meda’s long term team partnership will be dissolved by the end of June. I know that this news is stunning but the decision was made with the approval of all Directors … Alice will take over Meda Jewelry Limited, KH will continue to run the China Factory and I, Danny Hor, will take over Anju Jewelry and Forex Creation and Development Limited … The decision was made and I was extremely sad that I was not able to continue to work on the VW Brand…”

60.  Had that “rough understanding” of the 1^st defendant as to the division of the Meda Group been dependent upon those conditions alleged by him, it would have been most surprising that he would have sent such an email to Victoria Wieck on the very same day as the meeting of 22 May 2007 couched in those terms.  Not only were there no indications that the decision to split the Meda Group was conditional upon future events or agreement which may or may not happen, but categorically says that “the decision was made”.

61.  The explanation given by the 1^st defendant for sending such an email in the terms stated above to Victoria Wieck was to test the reaction of the customer as to their intended splitting.

62.  Victoria Wieck responded by email on the same date and clearly expressed her reservation about the intended splitting of the Meda Group by saying “I am not sure if this is a good thing for all of you?” and “I don’t know if this time period was the ideal time to part ways from each other.”

63.  When asked in cross-examination as to what steps he had taken to clarify the situation with Victoria Wieck, the 1^st defendant answered by saying that he had intended to call Victoria Wieck on the phone but failed to reach her.  However, that answer of the 1^st defendant was flatly contradicted by Victoria Wieck who was quite adamant that the 1^st defendant did have a phone conversation with her in late May 2007.

64.  When the 1^st defendant was further cross-examined as to why he did not make it known to Victoria Wieck that the split of the Meda Group was only a “rough understanding” as alleged by him which was conditional only, the 1^st defendant gave the answer that he had decided to hold back talking to Victoria Wieck about the matter as a result of his discovery on 31 May 2007 of the ‘123TV Orders’.  However, that answer from the 1^st defendant is again contradicted by his own evidence that he had discovered the ‘123TV Orders’ by accident on 14 June 2007 (paragraph 4 of 1^st defendant’s witness statement).

65.  There is also evidence from Victoria Wieck that she had met the 1^st defendant in Las Vegas in early June and the 1^st defendant did speak to her about the splitting of the Meda Group saying that he would be focusing on those less demanding customers.  There was, however, no mention that the split was a ‘rough understanding’ only or that it was conditional.

66.  Another email from the 1^st defendant to another customer, John Bosco, dated 27 May 2007 also states:

“… I had decided a full withdrawal from Meda Jewelry Limited and continue to run Anju Jewelry Limited & Forex Creation separately … I know it is stunning but our decision have been made…”

67.  Once again, not only was there nothing in this email to John Bosco to indicate that the decision to split was conditional upon anything, but the words “our decision have been made” would convey that the decision was unconditional.

68.  It was also the evidence of the 1^st defendant that he had met with other customers, Jeff Taraschi and Jan Feingold in Las Vegas in early June and had decided to withdraw from Meda but would continue with the jewellery business with Forex.  In neither case however, did the 1^st defendant ask Taraschi or Feingold for their comments or views on the split.

69.  Secondly, it is also not in dispute that 4 employees were actually laid off by Meda at the end of May 2007 due to “the restructuring of the company” and steps were taken to lay off all of the remaining employees of Meda and the Meda PRC Factory by the end of June 2007.  In respect of the 4 employees actually teminated by Meda at the end of May 2007, their letters of termination were dated 31 May 2007 and among those 4 employees were included the secretary of the 1^st defendant and also the sister-in-law of the 1^st defendant.

70.  The dividing line between the plaintiffs and the defendants is that it is the plaintiffs’ case that the staff were laid off pursuant to the Agreement while it is the defence case that the laying off of the staff was done without the consent of the 1^st defendant and despite much protest from him or was done behind his back when he was away from Hong Kong.

71.  In paragraph 54 of his witness statement (which witness statement was adopted, inter alia, as his evidence-in-chief), the 1^st defendant stated that he did not consent to the laying off of the staff and it was done with much protest from him.

72.  However, in his oral testimony, the 1^st defendant said that the termination of the employees of Meda in May 2007 was done behind his back while he was away from Hong Kong, but when he got back to Hong Kong he held up discussions with the 1^st and 2^nd plaintiffs because he had discovered the “important” email dated 5 June 2007 from Alice to Christine Lloyd.

73.  These two versions of his evidence do not sit well together for there was either protest from him or there was none.

74.  If it was the intention of the 1^st and 2^nd plaintiffs that the termination of the staff of Meda was to be done behind the back of the 1^st defendant while he was away from Hong Kong, it would be quite inconceivable that the 1^st defendant’s secretary and his sister-in-law would be amongst those first 4 staff to be terminated.

75.  Furthermore, the minutes of the shareholders’ meeting dated 16 June 2007, quite clearly showed that the 1^st defendant was aware of the steps being taken by the Meda PRC Factory to lay off its employees and that the 1^st defendant had even appointed Tsang Kam Chuen as his representative to witness the redundancy payments to the factory workers. (I shall come to deal with the 1^st defendant’s dispute in respect of those minutes in a later part of this judgment.)

76.  I turn now to consider the evidence relating to the sale of the registered office of Meda.  There is no dispute that Meda’s office was put on the property market for sale in around May 2007 and that a provisional sale and purchase agreement was signed for its sale on 25 May 2007, just three days after the meeting on 22 May 2007.

77.  What differs between the plaintiffs and the defendants is only the underlying reason for the sale of Meda’s office.

78.  The plaintiff’s case is that the parties started to negotiate for the split soon after the 1^st plaintiff submitted her letter of 4 May 2007, and Meda’s office was put on the market in order to ascertain the market value of it and to see what price it could fetch.  Only when the Agreement was reached between them was there a final agreement made to actually sell Meda’s office.

79.  On the other hand, the defence case from the evidence of the 1^st defendant is that the parties agreed to put up Meda’s office for sale for the purpose of paying the gold loan and monies owed to HSBC.

80.  That case of the defendant, however, suffers from the fact that there is no evidence before the court that there was any attempt to locate or secure alternative premises to be used as an office for Meda once that sale of its registered office was put through.  In that sense, the sale of Meda’s registered office was more consistent with the intention of the parties to split and for each of them to start anew on their own.

81.  More importantly however, the defence case is again contradicted by the Minutes of the shareholders’ meeting on 16 June 2007 in which it was recorded the parties agreement to settle the gold loan with HSBC on or before 30 June 2007 by using the funds from HSN invoices factoring with HSBC.  Once again I will need to come back to the Minutes of 16 June 2007 in a later part of this judgment to deal with the dispute of those Minutes by the 1^st defendant.

82.  It is also not in dispute between the parties that factually a stock taking exercise was conducted in June 2007.  In support of that, there is in evidence a document entitled “All Warehouse Listing” which sets out the quantity and value of the inventories and stocks kept in the warehouses as well as the manner in which the assets are to be divided by the shareholders in accordance with their shareholding ratio.  There is also a report dated June 2007 of the Meda PRC Factory.

83.  Once again it is the underlying reason for the stock taking exercise which divides the plaintiffs and the defendants.  It is the plaintiffs’ case that the stock taking was done for the purpose of implementing the split pursuant to the Agreement while it is the defence case that the stock taking was done only as part of the routine business of Meda.

84.  Again the defence case is contradicted by the Minutes of the shareholders’ meeting of 16 June 2007 in which it was expressly recorded that the stock taking was done for the purpose of facilitating the splitting of the Meda Group and the division of its assets at the cut-off date of 30 June 2007.

85.  I now turn to consider the dispute raised by the 1^st defendant relating to the Minutes of the shareholders’ meeting on 16 June 2007.

86.  Reference had already been made above as to the Minutes of the shareholders’ meeting of 16 June 2007 having recorded matters relating to the 1^st defendant having appointed Tsang Kam Chuen to be his representative to witness the redundancy payment to the workers of the Meda PRC Factory upon their being laid off as well as to the agreement of the parties to settle the gold loan with HSBC on or before 30 June 2007 by using the funds from HSN invoices factoring with HSBC.

87.  It is common grounds that those minutes were taken and prepared by Suki, a staff of Meda, and although at the end of the minutes there were blank spaces intended for signature by each of the shareholder, it is a fact that those minutes have never been signed by or on behalf of any of the three shareholders of Meda.

88.  The evidence of both the 1^st plaintiff and the 2^nd plaintiff is to the effect that after those minutes had been prepared by Suki, they were never asked by Suki to sign those minutes despite the fact that blanks had been provided for signature.  They attributed that to the informal way in which things were usually done in Meda.  Both the 1^st and 2^nd plaintiffs also gave evidence to the effect that what was recorded in those minutes were as how matters had happened and agreed in the meeting itself thus confirming the accuracy of those minutes. 

89.  The 1^st defendant disputes and challenges the accuracy of what was recorded in the minutes relating to the meeting on 16 June 2007.  However, that challenge to the accuracy of those minutes was only made by the 1^st defendant for the first time when giving his oral testimony in the witness box on the basis that because those minutes were not accurate it had not been signed by any of the shareholders of Meda.

90.  Before the 1^st defendant took to the witness stand, there had been no indication that the accuracy of what was recorded in those minutes would be disputed by the 1^st defendant.

91.  In this regard, the witness statement of the 2^nd plaintiff had referred to the fact that the 1^st defendant had appointed Tsang Kam Chuen to be his representative to look after the interest of the 1^st defendant in the Meda PRC Factory as set out in those minutes.

92.  In response thereto, the 1^st defendant, in his supplemental witness statement, stated that “the parties have discussed various issues in the board meeting but no agreement has been reached.”

93.  It was only when the 1^st defendant gave oral evidence that for the first time the 1^st defendant disputed having appointed Tsang Kam Chuen to be his representative to monitor the situation in the Meda PRC Factory and also disputed that those minutes recorded accurately what had transpired at the meeting on 16 June 2007.

94.  Indeed, this evidence from the 1^st defendant may well have taken defence counsel by surprise since no challenge to the accuracy of those minutes had ever been raised by defence counsel in his opening, prior to the 1^st defendant taking the witness stand and indeed no question had been asked by defence counsel in cross-examination of the 1^st and 2^nd plaintiffs relating to the accuracy of those minutes.

95.  In assessing the evidence of the dispute to the minutes of 16 June 2007, the challenge by the 1^st defendant to the accuracy of those minutes comes very late in the day.  As such it really is a matter which goes to weight.  I am not prepared to accede to the suggestion of the 1^st defendant that those minutes were not signed because of the accuracy (or inaccuracy) of what was recorded in those minutes.

96.  On the other hand, it is a fact that those minutes were unsigned.  The fact that those minutes were unsigned is but a matter of formality since there is also evidence coming from the 1^st and 2^nd plaintiffs to the effect that what transpired at the meeting on 16 June 2007 was as what had been recorded in those minutes.  Both the 1^st and 2^nd plaintiffs were present at that meeting and could have given evidence as to what had occurred at the meeting without those minutes.  Again that would have been a matter of weight.

97.  I have no hesitation in accepting their evidence as to what occurred at the meeting and that is supported by the minutes, albeit unsigned.  The minutes were recorded by a staff of Meda who has no individual interest to serve and therefore no reason to record those minutes differently from what actually transpired at the meeting.

98.  I also accept the evidence from the 1^st and 2^nd plaintiffs that they were not asked to sign those minutes by Suki because of the informal way in which matters had always been conducted in Meda.

FINDING OF FACT ON THE FIRST ISSUE

99.  For the reasons given on the assessment of the evidence above, I have no hesitation in accepting in its entirety the evidence of the plaintiffs that the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant have reached the Agreement by 22 May2007 on the terms as stated by the plaintiffs.  I found both the 1^st and 2^nd plaintiffs to be honest witnesses doing the best they can to tell the truth to the court as to all that had transpired between them and the 1^st defendant in this matter.

100.  I found the 1^st defendant to be not only an unreliable witness, but also a dishonest witness so much so that I reject not only the explanation given by the 1^st defendant in his attempt to explain away why he sent those emails to his clients in which it was clearly stated by him that a decision had been reached to split the Meda Group in the way stated therein, but also reject all his evidence where they conflict with the evidence given by the 1^st and 2^nd plaintiffs.

THE SECOND ISSUE

101.  On the facts as found by me, I now proceed to deal with those matters raised in submissions in the second issue which is a mixed question of fact and law.

102.  A number of matters were raised by the defendants to say that due to the uncertainties relating to those matters raised, whatever agreement may have been reached by the parties must have been so vague and uncertain that it cannot be legally enforceable in law.

(a) Question of compensation

103.  This was a factual matter raised in the evidence of the 1^st defendant that even when they had come to the “rough understanding” as to how to split Meda, Anju, Forex and the Meda PRC Factory, he had raised the question of compensation by the 1^st plaintiff for taking over Meda as being the lion’s share of the split.

104.  In fact compensation arose only in the 1^st plaintiff’s letter of 4 May 2007 sent by her to the 2^nd plaintiff and the 1^st defendant.  In that letter the 1^st plaintiff had asked to pull out from their “partnership” in the Meda Group and it was in that context that she had raised the question of compensation to her for pulling out.  However, the plaintiffs’ case on facts was that the question of compensation was never discussed or even negotiated by them during their discussion as to the split.

105.  It must be recognized that the initial suggestion of the 1^st plaintiff to pull out from further co-operation in the Meda Group is a very different situation from splitting up the Meda Group ultimately agreed between them.

106.  I have already found in favour of the plaintiffs on the facts and rejected the factual evidence of the 1^st defendant. On that basis the question of compensation does not even arise.

107.  There is also evidence which I accept from both the 1^st plaintiff as well as Victoria Wieck that HSN, which is the largest customer of Meda, is a very difficult client.  Very likely this was the underlying reason why the 1^st defendant, when it was initially suggested on 21 May 2007 for him to take over Meda and for the 1^st plaintiff to take over Anju and Forex, after thinking the matter overnight, came back with the counter proposal on 22 May 2007 and which was ultimately accepted by all, that the 1^st plaintiff should take over Meda and he, the 1^st defendant, would settle for Anju and Forex.

108.  This evidence I also accept and likely explains why the question of compensation was never raised or even discussed when it came to the split (as opposed to the 1^st plaintiff pulling out).

(b) Reaction of the overseas customers

109.  As a matter of fact, I have already rejected the 1^st defendant’s evidence factually that the emails sent by him to Victoria Wieck and other overseas customers were done by him to test the reaction of the overseas customers.

110.  How it can be said that the reaction of those overseas customers can have an impact on the binding nature of the Agreement is not easy to see.

111.  If it was the defence case that the 1^st defendant would only make up his mind as to the split of Meda Group depending on the reaction by the overseas customer, then as a matter of fact I have already rejected his evidence and accepted the evidence of the 1^st and 2^nd plaintiffs in that respect.

(c) Lack of up-to-date financial reports and accounts of the Meda Group

112.  The 1^st defendant alleges that the lack of up-to-date financial reports and accounts of the Meda Group gives rise to uncertainties in relation to the split up of the Meda Group, and until this information was at hand, there can be no binding agreement between the parties as to the proper splitting up in the way suggested.

113.  Factually, there is no dispute that this information was not yet available either on 22 May 2007 or even towards the end of June 2007.

114.  In this respect, I accept the submission of the plaintiffs that the law only requires a workable formula to be agreed and there is no requirement in law that every detailed item has to be in place before an agreement can be legally binding upon the parties.

115.  In the context of the present case, having found the facts on behalf of the plaintiff, it follows from that finding that the terms agreed between them, in particular the Asset sharing terms in relation to the Assets Pool and also the Liabilities Pool and the manner agreed as to what is to be contained in the Assets Pool and to be divided according to the share ratio of the shareholders; what is to be contained in and how the Liabilities Pool is to be paid off, there is here a workable formula already agreed by the parties for the sharing of the assets and the paying off of the liabilities of the Meda Group, such that there would be no uncertainties or incompleteness in the Agreement arrived at by them.

(d) Lack of particulars of the value of the stocks and inventory kept in the Meda PRC Factory and the Hong Kong Office

116.  Once again, the evidence was that the exercise of stock and inventory taking was being undertaken in the Meda PRC Factory and had not yet been completed even shortly before the end of June 2007.

117.  On the Agreement as found above on the case of the plaintiff, the parties had already agreed on a formula for the sharing of the stock and inventory in the Meda PRC Factory. 

118.  In the same manner as with the financial reports and accounts, the term agreed between them as to the sharing of the stock and inventory in the Meda PRC Factory was a workable formula and therefore these are not matters which require all the minor details of such stock and inventory to be made available before the Agreement can be said to be a complete and binding agreement.

119.  In the circumstances there is no uncertainty or incompleteness in this regard.

(e) Value and intellectual property rights of the moulds

120.  On the factual findings made above, the terms of the Agreement (which I have accepted) have adequately dealt with the ownership of these properties.

121.  Under the Assets Sharing Terms, assets belonging to the Meda PRC Factory would be kept by the Meda PRC Factory and assets belonging to Meda, Anju and Forex would be shared by the respective shareholders in accordance with their shareholding.

122.  From the documentary and oral evidence, it is also clear that those moulds which were the properties of the various customers (as for instance the claim by Jay Feingold by email for mould belonging to the customer) would be returned to the respective customer.

123.  Once again, what was agreed in this respect by the parties was a workable formula and again it was not necessary for every single detail to be worked out before the Agreement can be binding in this respect.

124.  Again there is no uncertainty or incompleteness in this regard.

(f) Value of goodwill and trademark

125.  Pursuant to the Agreement as found above, it was part and parcel of the Agreement that the respective parties taking control of the companies within the Meda Group would also take the benefit of its goodwill and trademark.

126.  In those circumstances, it was not necessary for the parties to specifically agree on the issues as to the goodwill or the trademark and the absence of such specific agreement does not render the Agreement incomplete or otherwise not legally binding or unenforceable.

(g) Discharge of liabilities of personal guarantees and impact on existing banking facilities

127.  The evidence showed that for the banking facilities obtained from HSBC by Meda, personal guarantees were given by each of the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant.

128.  In respect of each of the personal guarantees given by the above, it was a contractual term with HSBC that one month’s notice in writing had to be given to HSBC in the event that any guarantor wished to withdraw his guarantee given to the HSBC.

129.  It is common grounds that up to the time the petition was presented on 26 June 2007 to wind up Meda, no written notice had been given by any of the three guarantors to terminate the guarantee given to the HSBC by them.

130.  The point taken by the defendants is that it is not possible for the split of the Meda Group alleged by the plaintiffs to take place at the end of June if there was no steps taken as late as the 26 June 2007 to terminate the guarantees given to HSBC since on the plaintiff’s case, at least the 1^st defendant will have no further interests in Meda and no obligation to continue as a personal guarantor for Meda to guarantee its loan from HSBC come 1 July 2007.  The implication therefore is that there was no concluded or binding agreement between them as alleged by the plaintiffs for the split of the Meda Group.

131.  I do not accept this contention of the defendants for the following reasons.

132.  Firstly, it has already been found as a fact that in so far as the pre-existing liabilities of Meda in respect of the loans obtained pursuant to such banking facilities granted by HSBC are concerned, and for which those personal guarantees apply, the parties had already agreed as part of the Agreement to settle all of Meda’s liabilities owed to HSBC by using its assets to pay off such loans by the cut-off date of 30 June 2007.  In this respect, there is no suggestion and no evidence to even indicate that Meda did not have sufficient assets to settle such liabilities owed to the bank.

133.  Secondly, once the existing liabilities for the existing banking facilities granted to Meda has been discharged in the manner envisaged by the Agreement, that existing banking facilities can be terminated with the bank together with all the three personal guarantees which were given only in respect of the existing banking facilities granted by the bank.

134.  It would then be for the new owner of Meda (i.e. the 1^st plaintiff) to make new arrangements with the bank (whether HSBC or some other bank) for new banking facilities to be granted to Meda as from 1 July 2007 for Meda to carry on its business under the new ownership.  Even if the 1^st plaintiff does not succeed in obtaining new banking facilities for Meda as from 1 July 2007, that can have no bearing or impact on the implementation of the Agreement or the splitting up of the Meda Group.

135.  Thirdly, it does not surprise me that no steps were taken by any one of the three guarantors to terminate their personal guarantees given to the HSBC for the existing banking facilities by the giving of one month’s written notice, since by doing so the only consequence it would entail would likely be for the HSBC to call in the outstanding loan in respect of the banking facilities granted by it to Meda.  That would not have been in the interest of Meda since it was still continuing its existing business right up to the cut-off date of 30 June 2007.  Instead, one of the terms agreed upon for the implementation of the Agreement was for Meda, by the cut-off date, to pay off its existing liabilities to the bank by using its own asset.  In so doing that would lead naturally to the termination of the existing banking facilities as well as the termination or discharge of all three guarantees.  That course would, in my view, and given the circumstances of this case, be the more sensible course to take.

136.  Therefore the suggestion by defence counsel that the termination clause in the contract of guarantee with the HSBC ought to have been resorted to by the guarantors in terminating the personal guarantee by giving one month’s written notice was no more than a red herring once the full situation can be properly analysed.

137.  Given the above reasons, the failure to give notice to the bank to terminate the personal guarantees before the cut-off date of 30 June 2007 and/or the impact that may have on the existing banking facilities cannot be a material matter which must be settled before the end of June 2007 in order to enable the Agreement to be binding and enforceable in law.

(h)     Alleaged wrongful solicitation of customers by the 1^st plaintiff

138.  Complaint was raised by the 1^st defendant of wrongful solicitation of customers by the 1^st plaintiff.

139.  The first of such complaints relate to the 1^st plaintiff approaching HSE Germany and Shop Channel Japan at the Las Vegas Show in early June 2007 after she had promised not to approach the customers of Anju and Forex for one year from 30 June 2007.

140.  The evidence from the 1^st plaintiff was that prior to meeting up HSE Germany and Shop Channel Japan in Las Vegas, she had already informed the 1^st defendant by email dated 25 May 2007 that she will meet these two customers.  It was also the 1^st plaintiff’s evidence that the purpose for her meeting these two customers in Las Vegas was to say goodbye to them and to explain to them that she will not be able to deal with them for the agreed period of one year after the split within the Meda Group.

141.  When the 1^st plaintiff returned to Hong Kong, in her email dated 5 June 2007 to Christine Lloyd, the 1^st plaintiff mentioned in passing that she had “positive feedback” from HSE Germany and Shop Channel Japan in meeting them in Las Vegas.  The 1^st defendant read those words to mean that the 1^st plaintiff was wrongfully soliciting these two customers against her promise not to do so.

142.  There is no reason to doubt the truthfulness of the evidence from the 1^st plaintiff.  In fact there is a ring of truth to it.

143.  Furthermore, if the 1^st plaintiff was doing something wrongful behind the back of the 1^st defendant, one would not expect her to forewarn him that she will be meeting HSE Germany and Shop Channel Japan in her email of 25 May 2007 before she even met them.

144.  The second complaint made by the 1^st defendant relate to the Amkor Pacific Orders, some mention of which has been when assessing the evidence in this matter.

145.  The documentation relating to the Amkor Pacific Orders would appear to suggest that this was a brand associated or linked with Victoria Wieck who had been dealing with Meda all along.  There is also evidence from the 1^st plaintiff that the buyer for the Amkor Pacific Brand is one Kevin Wieck, the husband of Victoria Wieck.

146.  That evidence coupled with the confirmation by the 1^st defendant in his email dated 22 May 2007 that he will not deal with the VW Brand, may well have caused the 1^st plaintiff to genuinely believe that it was not wrongful for her or for Meda to continue to deal with the Amkor Pacific Order.

147.  However, it was only when the evidence from Victoria Wieck (given by her from the witness box in cross‑examination) emerged that it came to light that although Victoria Wieck was the President of Amkor Pacific since its inception in 1989, she was unable to say who is the entity which now owns the Amkor Pacific Brand but that it is not associated with the VW brand.

148.  Given the evidence, it is not difficult to see that the 1^st plaintiff may well have been genuinely mistaken about the status of Amkor Pacific and that she had genuinely thought that she had the right to deal with despite the promise made by her not to deal with the clients of Anju and Forex for one year.

149.  The third complaint made by the 1^st defendant relates to the 123 TV Orders. This complaint seems to have been misplaced since the documents suggest that these orders were placed with Forex and there is no evidence of their being diverted to the 1^st plaintiff or to Meda.

150.  Indeed no submission had been made of the 123 TV Orders by counsel for the defendants in his closing submission.

151.  The fourth complaint made relates to the HSN Orders.

152.  There is a signed statement by one of the staff of Meda, Lai Ho Yan, that when she informed the 1^st defendant of the HSN Orders, the 1^st defendant’s reaction was that he would not concern himself with those orders.

153.  Subsequently, the minutes of the shareholders’ meeting of 16 June 2007 recorded that the parties agreed to include the accounts receivable from the HSN Orders into the Pool of Assets to be shared by the parties under the Agreement and direct evidence from the 1^st and 2^nd plaintiffs that was indeed what was agreed between them at that meeting.

154.  I have already accepted that evidence of the plaintiffs and rejected the evidence of the 1^st defendant in respect of what transpired at that meeting on 16 June 2007.

155.  The evidence relating to the HSN Orders and my finding thereon can in no way negate the existence of the Agreement or make it such that the Agreement reached between the parties cannot be legally binding by reason of it being too vague or uncertain.

156.  Indeed all the complaint made by the 1^st defendant as to wrongful solicitation of customers can only demonstrate that the parties had entered into a binding agreement to split the Meda Group in the manner put forth by the plaintiffs since the promise by the 1^st plaintiff not to deal with the clients of Anju and Forex for one year after 30 June 2007 is dependent upon the Agreement and can only kick in where the Agreement was binding upon the parties.

(i) No steps taken for the transfer of shares

157.  It was common grounds between the parties that no positive steps had been taken, before the presentation of the petition to wind up Meda on 26 June 2007, to arrange for the transfer of the shares of Meda, Anju and Forex in the implementation of the split pursuant to the Agreement.

158.  When the 1^st plaintiff was cross-examined on this aspect, whether she had taken any steps to arrange for the transfer of all the shares of Meda to herself and the transfer of all the shares of Anju and Forex to the 1^st defendant, she accepted that she had not taken any steps in this regard.  She further explained that she considered the transfer of the shares to be formalities which could be done by the accountants upon short notice.  She also said that it was the 1^st defendant who would normally be responsible for approaching the accountants on such matters and she was happy to leave that to him to carry out.

159.  The point taken by the defendants in submission was that no steps had been taken in this regard to effect the transfer of the shares was because there was no concluded or binding agreement between the parties as to the splitting of the Meda Group such that no steps in this regard was taken.

160.  In this respect, I accept the submission of the plaintiffs that the transfer of the shares in Meda, Anju and Forex were more a formality than one of substance.  Once the Agreement had been made between the parties, even if the transfer of the shares was delayed due to the time needed for the completion of the paper work by, say up to a week, after the 30 June 2007, this could not have cause any difficulties or problem as long as the parties accepted and acknowledge the Agreement and the cut-off date.

161.  I do not accept that the lack of steps taken to effect the transfer of shares to be something from which it could be inferred, as against all the other circumstances of this case, that the Agreement did not or could not have existed.

ESTOPPEL BY CONVENTION

162.  In the light of the findings made above on the first and second issues, it will not be necessary for me to go into or deal with the submission made by counsel for the plaintiff on this aspect of the case, which would only arise if I had found against the plaintiffs on both the first and second issues.

163.  In the circumstances, the issue of estoppel by convention does not now arise.

CONCLUSION

164.  On the findings of fact made above, and the view that I have taken that there was nothing uncertain or incomplete as to the Agreement, I find that there was an Agreement which was concluded between the parties on 22 May 2007 and that the defendants were in breach of the Agreement when it presented the petition to wind up Meda on 26 June 2007.

165.  Accordingly I find the defendants to be liable for breach of the Agreement on the issue of liability.

166.  There will be an order for judgment to be entered in favour of the plaintiffs on liability and with damages to be assessed.

COSTS

167.  There will be a costs order nisi that the defendants do pay the plaintiffs the costs of the plaintiffs’ claim on the issue of liability including the trial on liability to be taxed if not agreed.