LAU TIN CHEUNG v. TIANJIN DEVELOPMENT HOLDINGS LTD

HCA 422/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 422 OF 2011

(TRANSFERRED FROM LABOUR TRIBUNAL CASE NO LBTC 331/2011)

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J U D G M E N T

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Introduction

1.  The plaintiff’s claim in this action is for damages for breach of a contract of employment dated 5 September 2008 (“the contract”) whereby the defendant employed the plaintiff as a project investment director.

2.  The defendant is a listed company incorporated in Hong Kong with its shares trading in the Hong Kong Stock Exchange.

3.  By the contract the defendant employed the plaintiff as a project investment director.  The plaintiff commenced his employment with the plaintiff on 27 October 2008. The contract provided for a probation period of three months.

4.  The plaintiff completed his probation period of three months on 28 January 2009 and continued on with his employment by the plaintiff until it was terminated by the defendant by a notice in writing dated 25 November 2010.  It is agreed that the effective date of termination was 29 November 2010.

5.  The plaintiff alleges that contrary to the express terms of the contract the defendant has been in breach of the contract as the defendant failed or refused to grant him share options to subscribe for 600,000 shares in the defendant (“the share options”).

6.  The plaintiff also alleges that the defendant has been in breach of the contract and the Employment Ordinance Cap 57 by failing to pay him his entitlements upon termination of the contract.

7.  By the statement of claim the plaintiff claims damages for breach of the contract as the defendant has failed or refused to grant him the share options.

8.  The plaintiff also claimed the total sum of $325,030.73 as pleaded and particularized at paragraph 6 of the statement of claim for salary in lieu of notice, annual leave pay, end of year payment, welfare allowance, meal allowance and severance pay.

9.  The plaintiff applied for summary judgment of its claims against the defendant under 0.14 Rules of the High Court.  By a judgment dated 23 November 2011 it was adjudged by Master S Kwang that part judgment be given in favour of the plaintiff against the defendant for $182,513 being two months’ salary in lieu of notice and part of the annual leave payment including one day salary and $63,479.45 being the end of year pay.  It was further ordered that the rest of the plaintiff’s 0.14 summons be dismissed.

10.  Save for the plaintiff’s claim for damages against the defendant for breach of contract by the defendant’s refusal or failure to grant him the share options, the rest of the plaintiff’s claims were settled by the parties at the time of trial.

11.  The only claim that remained at trial was the claim for damages for breach of contract for refusing or failing to grant the plaintiff the share options.

The issues

12.  The agreed issues are:

1. Whether the defendant was in breach of the contract in failing to grant the share options to the plaintiff.  In particular:

(1) Whether on a proper interpretation of clause 8 of the contract, the plaintiff was entitled to be granted the share options upon completion of his probation or alternatively.

(2) Whether on a proper interpretation of clause 8 the plaintiff was only entitled to apply for the granting of the share options, the issuance of which is subject to the approval by the defendant at the discretion of its board of directors and whether such approval was given.

2. Whether the plaintiff has suffered any loss or damage as a result of the defendant’s above alleged breach.  In particular, whether the plaintiff has suffered the loss of $2,508,000 or any other amount as the Court determines.

13.  Issues 1(1) and (2) are the issues on liability and issue 2 is the issue on damages.

The witnesses

14.  I heard evidence from the plaintiff.  I also heard evidence from Fok Lai Bing (“Fok”) and Nip Kin Sang (“Nip”) who also gave evidence for the plaintiff.

15.  I also heard evidence from Zhang Shu Qin (“Zhang”) and Simon Tuen Kong (“Tuen”) who gave evidence for the defendant.

The contract

16.  The plaintiff was employed by the defendant at a monthly salary of $65,000 during the probation period and $70,000 after the probation period.

17.  The dispute between the parties is on the proper construction of the contract in particular, clause 8 which stipulated that:

“Share option: Our company agrees, after expiration of the probation, to accept the Employee’s internal subscription for share options issued by the Company, The number of the shares is 600,000, The offering price is subject to Listing Rules of SEHK and approval of the board of directors, at the same time to be processed according to the unified regulations of the Company. Such share options are personal beneficial interests.”

18.  As pleaded at paragraph 5(viii) of the statement of claim, the plaintiff’s case is that it was an express term of the contract that the defendant was under an obligation to grant the plaintiff the share options upon completion of his probation period which was on 28 January 2009.

19.  There is no dispute that the defendant has not granted the share options to the plaintiff upon completion of his probation on 28 January 2009 or at any time thereafter.

20.  The defendant’s case is as pleaded at paragraph 8 of the amended defence which pleads:

“Upon a true and proper construction of Clause 8 of the Employment Contract, the plaintiff did not have any right to the issue of share option or shares of the Defendant. Under the said Clause 8, the plaintiff’s right was limited to apply to the Defendant for the issues of a shares option. The application was to be processed and approved by the Defendant at the discretion of the Defendant’s Board of Directors.”

21.  In Marble Holding Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222, Mortimer NPJ said at paragraph 19:

“There is much authority and little dispute in this appeal as to how the court must approach the interpretation of the meaning and effect of this commercial agreement. Having considered the complete document the whole matrix of circumstances within which the contract was made is relevant. These principles are set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 at pp.912F–913F and in Bank of Credit and Commerce International SA v Ali & Others [2002] 1 AC 251 where at para.8 Lord Bingham succinctly summarized them:

To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties.  To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified.”

22.  Mr Lam, with Ms Ho, for the plaintiff submitted that the plaintiff’s primary case was that on the proper construction of clause 8 there could be no discretion on the part of the defendant to decide whether or not to grant the plaintiff the share options after his probation period.  His alternative case is that the defendant did in fact subsequently exercise its discretion to grant the plaintiff the share options.

23.  Nip Kin Sang whose name in Chinese is also transliterated as Nie Jainsheng (“Nip”) was a director of the defendant at all material times.

24.  Nip gave evidence that he signed the contract on behalf of the defendant.  Before signing the contract Nip said that he gave the work description to the plaintiff and explained to him that the probation period was three months.  Nip also told the plaintiff that if his work performance was satisfactory his salary would be raised from $65,000 to $70,000 and that he would be granted the right of option to subscribe for 600,000 shares of the defendant after the probation.  This was not disputed and I have no hesitation in accepting his evidence.

25.  The plaintiff gave evidence that the employment with the defendant was the first job where he had been offered share options.  He said that apart from the salary he also considered the value of the options when he accepted the employment with the defendant.  He said that he was concerned about this as the salary that he accepted was lower than the salary from his previous job.  The defendant said that Nip also explained to him that if he passed the probation period there should not be a problem for the plaintiff to obtain the share options.

26.  I believe the plaintiff and accept his evidence.

27.  It is clear on the evidence that at the time of the contract the defendant’s Share Option Scheme (“the scheme”) with the adoption date of 25 May 2007 was the applicable scheme governing the granting of share options by the defendant.  The scheme is an elaborate document comprising of 16 printed pages and contains all the clauses governing the scheme.

28.  The plaintiff said that he was never shown the scheme when he entered into the contract.  He only saw the scheme after the same had been disclosed by the defendant in the course of this litigation.  I believe him.  There is also no evidence that Nip or anyone else from the defendant ever showed the plaintiff the scheme at the time the contract was entered into.  There is no evidence that the scheme was known to the plaintiff at the time of the contract.

29.  Before the plaintiff completed his probation period with the defendant, the defendant’s board of directors had a board meeting on 24 November 2008 where the share options to the plaintiff were discussed.

30.  According to the minutes of a board of directors’ meeting of the defendant held on 28 November 2008 (“the minutes”) during the period of the plaintiff’s probation with the defendant, the Chairman of the board reported that:

“according to the employment contract entered into by the Company and [the plaintiff], the Company would offer and grant 600,000 shares options under the Share Option Scheme to [the plaintiff] to subscribe for shares of the Company upon (1) the completion of three months’ probation (ie 26 January 2009)’ and (2) the Company was satisfied with his working performance. The Chairman proposed to set up a committee of directors comprising any two executive directors of the Company and delegate with them full powers of the board of directors of the Company to do all such things when appropriate as they think fit in relation to the granting of shares options to [the plaintiff] pursuant to the Listing Rules and the Share Option Scheme.”

31.  The following resolution was passed at the 28 November 2008 board meeting:

“IT WAS RESOLVED THAT a committee of directors comprising any two executive directors (the “Committee of Directors”) be formed and THAT the Committee of Directors be delegated with full powers of the board of directors of the Company to offer and grant 600,000 shares options pursuant to the Share Option Scheme and the Listing Rules to [the plaintiff] to subscribe for shares of the Company upon completion of three months’ probation, the Company was satisfied with his working performance and endorsement by the Remuneration Committee.”

32.  Fok was the defendant’s assistant company secretary from October 2006 to January 2010 when she left her employment with the defendant.  Her job was to assist the company secretary.  She was the one who was in attendance at the board meeting of 28 November 2008 and prepared the minutes.

33.  Fok gave evidence, which I accept, that the Remuneration Committee had a meeting subsequent to the board meeting of 28 November 2008 and she inserted a post‑meeting note to the minutes which stated that:

“[Post-meeting note: Subsequent to this meeting, a meeting of the Remuneration Committee was held on 17 December 2008 and the proposed grant of 600,000 share options was duly confirmed, approved and ratified].”

34.  Fok also said that in or about February 2009 after the plaintiff had completed his three months’ probation with the defendant, as instructed by her superior Tsang Wai Yip (“Tsang”) the group financial controller and the company secretary of the defendant she drafted the relevant documents for the grant of the share options to the plaintiff.  Such documents included:

(a) Written minutes of the meeting held by the Committee of Directors approving the grant of the share options to the plaintiff.  The Committee of Directors comprised of Nip and Ng Hok Man(“Ng”) whose Chinese name is also transliterated as Wu Xuemin;

(b) The offer letter to the plaintiff notifying him of the share options for the 600,000 shares granted to him and details as to how to exercise the option and requesting him to confirm his acceptance of the same; and

(c) A draft public notice as required by the Listing Rules of the Hong Kong Stock Exchange in relation to the grant of the share options to the plaintiff.

35.  Fok said that she gave the documents that she had drafted to Tsang for his approval.  However, she was later told by him that the grant of the share options was temporarily withheld at the request of Ng but she was not given the reason for this.

36.  She also said in evidence that Tsang took the documents to Nip and Nip had signed the resolution of the meeting of the Committee of Directors.  She had seen his signature on the document.  She had, however, not seen Ng’s signature on the document or on the draft offer letter.  The offer letter was never issued to the plaintiff and there is no dispute about this.  Fok also said that the documents remained on her desk when she left the employment with the defendant in January 2010.

37.  I believe Fok.  On Fok’s evidence, which I accept, it is clear that the Committee of Directors did not proceed to pass the resolution granting the share options to the plaintiff.  Nip seemed to think that the resolution had been passed but this is contrary to the evidence of Fok whose evidence I prefer to the evidence of Nip on this matter.

38.  I would observe that the defendant has not made discovery of the documents drafted by Fok nor has it produced those documents in evidence.  No explanation has been given for not producing the same.

39.  Mr Lam, with Ms Ho, for the plaintiff submitted that the defendant was obliged to grant the plaintiff an offer for the share options upon completion of his probation period on a proper construction of the contract.  Only one condition was imposed namely, that he completes his probation period.  Having completed his probation period on 28 January 2009, it is the plaintiff’s case that the defendant was obliged to make an offer to the plaintiff for the share options.

40.  Mr Lam also submitted that the words “at the same time to be processed according to the unified regulations of the Company” meant the procedure as to the grant of the share options such as the fixing of the price in the offer letter to the plaintiff, the period of time when the plaintiff could exercise the options and other matters which were within the board of directors’ discretion under the scheme.

41.  Mr Shum, for the defendant, submitted that the proper construction of clause 8 of the contract was that after the probation period the plaintiff was only entitled to apply for share options up to 600,000 shares.  The application was to be governed by the scheme.

42.  Mr Shum also submitted that there was absolute discretion in the board of the defendant in deciding whether to grant any share option to the plaintiff and to impose any conditions to the grant.  He submitted that clause 8 only gave the plaintiff the right to apply for options to subscribe up to 600,000 shares after the plaintiff completed his probation and that it was up to the board to decide in its absolute discretion whether to grant him any option at all up to a cap of options for 600,000 shares.  He relied on the clauses in the scheme in support of his submission, in particular clause 5.1 which provided that:

“On and subject to the terms of this Scheme, the Board shall be entitled at any time and from time to time within 10 years after the Adoption Date to make an Offer to any Participants as the Board may at its absolute discretion select, and subject to any such conditions as the Board may at its absolute discretion think fit, which may include (without limitations) any such minimum period for which an Option must be held by the Grantee before the Option can be exercised and/or any such performance targets that need to be achieved by the Grantee before an Option can be exercised, to subscribe for such number of Shares as the Board may (subject to Paragraph 9) determine at the Subscription Price.”

43.  Mr Shum also submitted that the terms of the scheme have been incorporated into the contract.  I reject this submission. That was not the intention of the parties.  The scheme was not even known to the plaintiff at the time of the contract.   

44.  The fact that the grant of the share options was to be processed according to the unified regulations of the defendant does not mean that all the terms of the scheme were incorporated into the contract.  This is not the defendant’s pleaded case.  There is no such plea in the defence. In my view, if the defendant wishes to assert that the terms of the scheme were incorporated into the contract this should have been pleaded.  Where a party relies on the terms of a contract, the terms relied on should be expressly pleaded.             

45.  I am satisfied that on the proper construction of clause 8 the defendant was obliged to grant the share options to the plaintiff upon the completion of his probation.  There was no other condition imposed for such grant under the contract.  The offer price for the exercise of the share options was subject to the Listing Rules and the approval of the board of the defendant.

46.  I am satisfied that the words “at the same time to be processed according to the unified regulations of the Company” in clause 8 mean that the procedure for the grant of the share options was according to the scheme.  The end to be achieved was the granting of the share options to the plaintiff and the procedure for achieving this was according to the scheme. 

47.  In my view, the clear express words in clause 8 of the contract is to prevail over the words in clause 5.1 of the scheme where the board is given an absolute discretion to decide which participant to select, what conditions to impose before the share options can be exercised, and the number of share options to be granted.  Where the printed words in clause 5.1 of the scheme are inconsistent with the express words in clause 8 of the contract, I am satisfied that the express words in clause 8 should prevail.

48.  By the express terms of the contract the defendant was obliged to grant the share options to the plaintiff after his probation period and there was no longer any discretion vested in the board to decide whether or not to grant him any share options at all and to impose a condition as to his working performance after the probation period.  I so find.

49.  Mr Shum also submitted that according to the voluntary particulars of the plaintiff dated 19 September 2014, the plaintiff was seeking damages at about $2,500,000 as a result of the defendant’s failure to grant the share options.  He submitted that it made no commercial sense for the defendant to agree to grant the plaintiff share options of that value right after he completed his probation period of three months.  

50.  I am unable to accept Mr Shum’s submissions.  At the time of the contract on their evidence, which I accept, both Nip and the plaintiff did discuss about the grant of the share options to the plaintiff on completion of the plaintiff’s probation.  The fact that at trial the plaintiff was seeking damages at about $2,500,00 for his loss as a result of the failure to grant the share options to him does not mean that the value of the share options at the time of the contract was anywhere near $2,500,000.  There is no evidence that either the plaintiff or the defendant ever contemplated at the time of the contract that the value of the share options would be $2,500,000 at the time of trial.  

51.  The share options were granted to the plaintiff as an incentive to attract the plaintiff to work for the defendant.  The subscription price for the exercise of the options would be fixed by the defendant in accordance with the scheme and it would be based on the trading price of the shares (see clause 6 of the scheme).  It would only make sense for a participant to exercise the option when the shares rise in value to a price higher than the subscription price.  That was something for the future and was certainly not the position at the time of the contract.  I reject the submission that it made no commercial sense for the defendant to agree to grant the share options to the plaintiff upon completion of his probation.  

52.  Mr Shum also submitted that the subsequent conduct of the parties did not support the plaintiff’s case on the construction of clause 8.  He said that on the evidence the plaintiff did not demand the share option rights until his solicitors’ letter of demand dated 14 December 2010 to the defendant.  I would observe that the letter from his solicitors was only about two weeks’ after his contract was terminated.  There was hardly any delay.  The plaintiff said that after he completed his probation he had mentioned the question of the share options to be granted to him but had been told by Nip and another director that it was under process.  I believe him.

53.  It seems to me that the subsequent conduct of the parties is not relevant to the construction of the written contract.  As to this, Mortimer NPJ said in Marble Holdings at paragraph 22:

“Also, post‑agreement conduct and statements of the parties are not generally relevant. This is the position in England and Australia. See James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at p.603 per Lord Reid and Ku v Song (2007) 63 ASCR 661 at para.53. Recently, however in Wholesale Distributors Ltd v Gibbons Holdings Ltd [2008] 1 NZLR 277, there are dicta in the judgments of the New Zealand Supreme Court favouring the admission of evidence of post‑contract conduct. If such a stance is confirmed in the future it will be controversial in other common law jurisdictions: see (2008) 124 LQR 6.”

54.  I disagree with Mr Shum that the subsequent conduct of the parties assists the defendant’s case.  The subsequent conduct of the parties is not relevant and hence inadmissible when considering the intention of the parties at the time of the contract.

55.  The meeting of the Remuneration Committee held on 17 December 2008 was also held during the period of the plaintiff’s probation period.  It is clear that the Remuneration Committee duly confirmed and approved the grant of the share options to the plaintiff even before the plaintiff had completed his period of probation.

56.  It seems to me that the defendant was all set to issue the offer letter to the plaintiff for the grant of the share options after he completed his probation. As Fok said in evidence she drafted the offer letter and the minutes of the Committee of Directors.  She also drafted the public notice to be given to the Hong Kong Stock Exchange.  Fok’s recollection was that the offer letter was to be given to the plaintiff on the same day that she drafted the documents.  I believe her and accept her evidence.  It seems to me that the subscription price and the period of time for the plaintiff to exercise the share options would have been stated in the documents.

57.  The only reason put forward by the defendant for not granting the share options to the plaintiff is as pleaded at paragraph 10 of the amended defence which pleaded that the board of directors of the defendant had not exercised its discretion to approve the issue of the options to the plaintiff due to the poor work performance of the plaintiff.

58.  Mr Tuen said that up to the date of the termination of the plaintiff’s employment with the defendant on 29 November 2010 the board of the defendant had not resolved to offer or grant any share options to him the reason being his poor work performance.  The defendant considered that because of his work performance after the probation period he would not be granted any of the share options.  In my judgment this was contrary to the express provisions in clause 8 of the contract and the defendant has been in breach of contract for failing to grant the plaintiff the share options.  The plaintiff is entitled to damages.

59.  Issue 1(1) is resolved in favour of the plaintiff.  The plaintiff succeeds on its primary case.  His alternative case does not arise.

Issue 2

60.  This is the issue on damages.  Mr Shum submitted that if the defendant were held to be liable for breach of contract the quantum of damages should be nil.  He submitted that the plaintiff failed to adduce any evidence of:

(a) when he would have exercised the share options if the defendant had granted the same to him in performance of the contract; and

(b) whether he had sufficient means to pay for the subscription price for the allotment of the shares at the time when he would have exercised the share options.

61.  In the circumstances it was submitted that the plaintiff has failed to prove his loss and the damages should be nil.

62.  According to the voluntary particulars of the statement of claim dated 19 September 2014, the plaintiff’s case on the loss suffered as a result of the defendant’s breach of contract is the difference between (a) the closing price of the shares on 31 January 2011 ($6.62) and (b) what would have been the subscription price of the option pursuant to clause 6 of the scheme on 28 January 2009 ($2.44).  The damages sought in the voluntary particulars is $2,508,000 ($6.62–$2.44 x 600,000).  The date 31 January 2011 was the date when the plaintiff commenced his case against the defendant in the Labour Tribunal which was subsequently transferred to the High Court.

63.  In his closing submissions, Mr Lam, for the plaintiff, submitted that instead of taking the date of commencement of the plaintiff’s case in the Labour Tribunal as the date for (a), it would be appropriate instead to take the date of termination of the plaintiff’s employment with the defendant ie 29 November 2010.  On that basis the plaintiff’s damages should be the difference between (a) the closing price of the shares on 29 November 2010 ($5.85) and (b) the subscription price of $2.44 thereby reducing the damages to $2,046,000 ($5.85–$2.44x600,000).

64.  It is well established that in assessing damages for breach of contract, the court’s task is to put the innocent party in the position he would have been in had the contract been performed.  In this case, the defendant has failed to grant the plaintiff the share options on 28 January 2009.

65.  I do not see any difficulty in assessing what the subscription price would have been.  Clause 6 of the scheme provided that the subscription price shall be a price to be determined by the board:

“at its absolute discretion ... and shall be at least the highest of:

(a) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the Offer Date, which must be a Business Day;

(b) a price being the average of the closing price of the Shares as stated in the Stock Exchange’s daily quotation sheets for the 5 Business Days immediately preceding the Offer Date;

(c) the nominal value of a Share [i.e. HK$0.10]”

66.  The relevant offer date would have been 28 January 2009 if the defendant had complied with its obligations under the contract.

67.  I accept the submission that clause 6(a) of the scheme is inapplicable as the offer date was 28 January 2009 which was not a business day.

68.  Clause 6(b) of the scheme is applicable.  The average of the closing price of the shares for five business days immediately before 28 January 2009, on the evidence, is $2.44.

69.  Mr Shum also submitted that the court should approach the matter of damages on the basis of what the plaintiff would have gained if the defendant had fulfilled its legal obligations and that in performing its legal obligations the defendant is assumed to have chosen to perform them in the way least beneficial to the plaintiff where the contract gave him that choice (Lavarack v Woods of Colchester Ltd [1967] 1 QB 278; Kaye Steam Navigation Co Ltd v W & R Barnett Ltd (1932) 48 TLR 440; The “World Navigator” [1991] 2 Lloyds Rep 23; and Zhang Jianhe v Citic 21CN Company Limited HCA 1968/2006, 23 June 2009, Au J, as he now is).

70.  Mr Shum submitted that the least beneficial subscription price to the plaintiff for the exercise of the share options could have been five times and even 100 times the highest of the market price.  I reject that submission.

71.  Mr Lam rightly submitted that the defendant could only perform its obligation one way namely, to grant the plaintiff the share options.  Although there was a discretion as to the fixing of the subscription price, there is absolutely no reason for the defendant to exercise its discretion in a different way than had been exercised by the defendant for other participants who were granted share options.

72.  In Durham Tees Valley Airport Ltd v BMI Baby Ltd and another [2011] 1 All ER (Comm) on the question of damages Patten LJ said at paragraph 63:

“The established measure of damages in the case of a breach of contract is the sum necessary to put the injured party in the same position as he would have been in had he not sustained the wrong: see Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39. The inquiry is therefore directed to what the party in breach is to have been taken to have done had he in fact performed the contract. In all cases of repudiation (and possibly even a breach) this will be a counter‑factual assessment which will involve the court in stipulating the manner of performance which is to be assumed.”

73.  And Patten LJ said at paragraph 79:

“The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter‑factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind.”

74.  Mr Shum submitted that the board had a discretion to fix the subscription price at a price higher than the market price.  I do not regard that as a likely scenario.  What is clear on the evidence, as confirmed by Tuen, is that of the share options granted to other participants from 2007 to 2013 the defendant has set the subscription price at the highest value calculated in accordance with clause 6(a) to (c) of the scheme.  There is no reason for the defendant to depart from what it had been doing with other participants.  In my view, it is reasonable to assess the subscription price at $2.44.

75.  Mr Shum also relied on Zhang.  In that case Au J was concerned with a plaintiff who had been granted share options.  The plaintiff’s claim was for damages for the wrongful refusal to approve the plaintiff’s exercise of his option to subscribe for 8 million shares in the defendant.

76.  Au J found against the plaintiff on the issue of liability.  He found, inter alia, that the plaintiff failed to prove that he had the necessary financial means to purchase the 8 million shares had his application to exercise the options were approved.

77.  Mr Shum submitted that the plaintiff has failed to establish that he had the financial means to pay for the subscription price for the share options.  Adopting the subscription price of $2.44 per share, the subscription price for the share options for 600,000 shares would have been $1,464,000.

78.  In my view, Zhang provides no assistance to the plaintiff.  It is distinguishable on its facts.

79.  In that case, the plaintiff had been granted share options.  The claim was for damages for wrongful refusal to approve the exercise of the options.  The plaintiff’s claim in this case is for damages for wrongful refusal to grant him the share options.  It is only when he exercises the share options that he has to pay the subscription price.  Also, unlike the case of Zhang where there was an issue raised in the defence as to whether the plaintiff had the necessary financial means to purchase the 8 million shares under the option price when he sought to exercise his right, there is no such issue raised in this case.  This has not been pleaded.

80.  As stated in Chitty on Contracts 31^st edn, vol 1 at paragraph 26 – 086:

“The general rule is that damages for breach of contract should be assessed as at the date when the cause of action arose, viz. the date of the breach (which usually applies where substitute performance is readily available in the market):

‘But this is not an absolute rule: if to follow it would give rise to injustice the court has power to fix such other date as may be appropriate in the circumstances.’

Thus, if, after a breach, the innocent party reasonably continues to treat the contract as in force damages may be assessed as at the later date ‘when (otherwise than by his default) the contract is lost’, viz when performance becomes impossible, or when the innocent party terminates the contract.”

81.  As Mr Lam submitted, the starting point is the date of breach which was the date when the share options should have been offered to the plaintiff.  However, it is plain that the share options were not available to be purchased in the market.  They were personal rights to be granted to the plaintiff.  The share options were certainly not available to be purchased in the market.

82.  It seems to me to be just for the court to adopt a date later than the date of breach to ascertain the loss to the plaintiff in this case.  In his voluntary particulars, the plaintiff adopted the date of instituting these proceedings in the Labour tribunal but in his closing submissions Mr Lam submitted that the appropriate date should be the date of termination 29 November 2010. That is the date when the relationship of employee and employer terminated.

83.  I accept Mr Lam’s submissions. Having considered counsel’s submissions, I agree with Mr Lam that the loss to the plaintiff is the loss of the value of the share options which he should have been granted.  As Mr Lam rightly submitted, the share options have a value which changes from day to day depending on the share price.  I am satisfied that although the share options were personal rights of the plaintiff they nevertheless were valuable rights of the plaintiff which he was deprived of by the defendant’s breach of contract.  The share price of the defendant rose from the subscription price of $2.44 in January 2009 to $5.85 on 29 November 2010, the date of termination.  It rose further after that to $6.62 on 31 January 2011 when the plaintiff commenced the proceedings in the Labour Tribunal. 

84.  I am satisfied that the court should adopt a date later than the date of breach for assessing the damages to the plaintiff.

85.  In Fu Sau Kwok Barry v Foo Sau Chun Richard (HCCL 20/2004, 4 May 2007, Deputy High Court Judge Gill) where the court was assessing damages for breach of a settlement agreement, the court assessed damages based upon the share price on a date long after the date of breach where the share price had appreciated considerably (see paragraphs 54 to 66 of the judgment).  The court there was not concerned with share options but with shares but the principle remains the same.  The court can in a proper case fix a date later than the date of breach as the appropriate date for assessing damages to a plaintiff.

86.  Mr Lam also relied on Lee Hung Chiu, Philip v Becton Dickinson Asia Limited (HCA 2830/2000, 26 March 2009, Chung J) where the plaintiff sought damages for his summary dismissal by the defendant.  The plaintiff’s remuneration package included stock options.  Chung J considered that the most appropriate share price to consider for assessing damages in respect of the stock options was the date of the summary dismissal of the plaintiff in that case.

87.  I accept Mr Lam’s submission that the date of termination should be taken as the appropriate date for assessing damages to the plaintiff.  The closing price of the defendant’s shares on 29 November 2010 was $5.85.  The plaintiff is entitled to damages in the sum of $2,046,000 ($5.85 – $2.44 x 600,000).

88.  The plaintiff is also entitled to interest on the said sum at 1% above the best lending rate of HSBC from the date of termination 29 November 2010 until judgment and thereafter at judgment rate until payment.

89.  I give judgment to the plaintiff against the defendant for damages in the sum of $2,046,000 with interest thereon at 1% above the best lending rate of HSBC from 29 November 2010 until judgment and thereafter at judgment rate until payment.

90.  I also make an order nisi that the defendant does pay the plaintiff his costs of the action such costs to be taxed if not agreed.