QU SHUNCAI v. CHINA BEIDAHUANG INDUSTRY GROUP HOLDINGS LTD

HCA 1867/2015

[2023] HKCFI 397

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1867 OF 2015

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J U D G M E N T

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A.  Introduction

1.  The plaintiff (“P”) used to work for the defendant (“D”) and one of its affiliate companies. In about 2007, D adopted a Share Option Scheme (the “Share Option Scheme”). It was in essence an incentive scheme. Disputes have arisen between the parties as to P’s interest thereunder. This is the trial of their disputes.

2.  Mr Man Hon Chiu appeared for P. Mr Anson Tso appeared for D.

B.  Admission of liability

3.  The current set of pleadings comprise inter alia P’s Writ of Summons with Statement of Claim indorsed of 17 August 2015 (“SOC”), D’s Re-Re-Amended Defence of 25 February 2019 (“RR-A Defence”), and P’s Re-Re-Amended Reply of 23 April 2019 (“RR-A Reply”).

4.  According to the pleadings, both liability and quantum are in dispute.

5.  Pursuant to the directions this Court gave during the Pre-trial Review on 15 August 2022, Mr Man and Mr Tso lodged their written openings respectively on 24 November and 1 December 2022. According to those submissions, both liability and quantum remained in dispute.

6.  On 6 December 2022, Mr Tso lodged his Supplemental Opening Submissions. He informed this Court that after the filing of his opening, “D has revisited its position and has changed part of the instructions”[1], and that specifically, “D’s updated stance is that it will concede to the issue of liability”[2].

7.  I record that upon D’s concession of liability, and the parties having on the 3^rd day of the trial agreed upon the terms, judgment on liability in favour of P with damages to be assessed (with costs reserved) was on 12 December 2022 entered (the “Judgment on Liability”).

8.  The balance of the trial has become an assessment exercise. And coming back to that:

(a)  I note from §3 of Mr Tso’s Supplemental Opening Submissions that:

“…D’s updated stance on quantum is that, should P have mitigated his loss by exercising the 2^nd tranche of shares of the 1^st option (2,250,000 shares) by the extended deadline as recorded in …, i.e. by 30 September 2015, the benefit which would be obtained by P would be larger than his sale proceeds of D’s shares, when the proper procedures were followed. Accordingly, there should be no recoverable damages on P’s part.”

(b)  He concludes by submitting[3] that:

“In the premises, D’s position is that should P have mitigated his loss, he would not have suffered any loss and damage.”

(c)  Mr Tso’s Supplemental Opening Submissions gives the impression that D’s updated stance on quantum is that it would take only the point of failure to mitigate. However, on the first morning of the trial, upon this Court’s request for clarification, Mr Tso said that that was in fact not the case, and that other points remained in issue. Further written opening submissions were then filed. I will come back to them later.

C.  Background facts

9.  The shares in D (“Shares”) are listed on the Stock Exchange Hong Kong (“SEHK”). The stock code is 0039. The Shares have therefore sometimes been referred to by the parties as the shares of 39.HK.

10.  The Share Option Scheme was first adopted in May 2007. Its operation was governed by a document entitled “SHARE OPTION SCHEME” conditionally adopted by the shareholders on 23 May 2007[4] (the “Scheme Document”). Its purpose was to provide incentive and/or reward to Eligible Persons (“Eligible Persons”). “Eligible Person” is therein defined as:

“any director or employee of the [D and its subsidiaries] and any other person (including a consultant or adviser) who in the sole discretion of the Board has contributed or will contribute to the [D and its subsidiaries]”

11.  Clause 4 of the Scheme Document governed the grant of options. D’s Board of Directors (the “Board”) could in its discretion offer share options to any Eligible Person to subscribe for such number of Shares (“Subject Shares”) at such price (“Subscription Price”) as the Board might determine.

12.  Clause 4.3 stipulated that:

“ … An Offer shall be deemed to have been accepted and the Option to which the Offer relates shall be deemed to have been granted and to have taken effect when the Company receives the duplicate of the offer letter comprising acceptance of the Offer duly signed by the Grantee with the number of Shares in respect of which the Offer is accepted clearly stated therein, together with a remittance of the Option Price to the Company ...”

13.  “Option Price” was defined to be HK$1 per acceptance.

14.  Clause 6 of the Scheme Document governed the exercise of options. Relevantly, Clause 6.2. provided that:

“An Option may be exercised in whole or in part by the Grantee (or his personal representatives) before its expiry giving notice in writing to the Company stating that the Option is to be exercised and the number of Shares in respect of which it is exercised. Such notice must be accompanied by a remittance for the full amount of the Subscription Price for the Shares in respect of which the notice is given. Within 30 days after receipt of the notice …, the Company shall issue and allot the relevant Shares to the Grantee (or his personal representatives) credited as fully paid and issue to the Grantee (or his personal representatives) a share certificate in respect of the Shares so issued and allotted.”

15.  P was between 1 June 2012 and 23 June 2015 a director of D. Given the concession of liability, it is no longer in dispute that P was until 23 June 2015 an Eligible Person under the Share Option Scheme.

16.  On or about 13 September 2010, D offered[5] P an option (the “1^st Option”), in the following terms:

(a)  Offer date: 13 September 2010 (the “1^st Offer Date”);

(b)  Number of Subject Shares: 4,500,000;

(c)  Subscription Price: HK$0.83 per share;

(d)  Option exercisable: 50% after the first anniversary of the 1^st Offer Date, and 50% after the second anniversary of the 1^st Offer Date;

(e)  Expiry date: 50% by 4 years from the 1^st Offer Date, and 50% by 5 years from the 1^st Offer Date;

(f)  Method of exercise: Delivery of the duly signed Exercise Notice, and payment of the total Subscription Price in specified method.

17.  The offer was accepted by P[6]. An Option Certificate[7] has been issued to him (the “1^st Option Certificate”).

18.  According to the evidence, D’s practice was to accept an Option Certificate as proof that the option price has been paid.

19.  On or about 23 July 2014, D offered P another option[8] (the “2^nd Option”), in the following terms:

(a)  Offer date: 23 July 2014 (the “2^nd Offer Date”);

(b)  Number of Subject Shares: 500,000;

(c)  Subscription Price: $0.754 per share;

(d)  Option exercisable: 50% immediately after the 2^nd Offer Date, and 50% after the first anniversary of the 2^nd Offer Date;

(e)  Expiry date: 50% by 2 years from the 2^nd Offer Date, and 50% by 3 years from the 2^nd Offer Date;

(f)  Method of exercise: Delivery of the duly signed Exercise Notice, and payment of the total Subscription Price in specified method.

20.  P’s case is that D had issued to him only an Exercise Notice for the 2^nd Option, but not an Option Certificate. Given the concession of liability, that P had been granted the 2^nd Option is no longer in dispute. In fact, amongst the documents disclosed and produced by D, there is an Option Certificate for the 2^nd Option[9] (the “2^nd Option Certificate”).

21.  Under cover of a letter dated 10 June 2015[10] from his solicitors Messrs Peter Cheung & Co (“Peter Cheung & Co”) to D, P served upon D the original 1^st Option Certificate with Exercise Notice[11] exercising the 1^st Option (the “1^st Option Exercise”) in respect of the second 50% of the 4,500,000 Shares (i.e. 2,250,000, the “1^st Option Shares”). Subscription Price in the sum of HK$1,867,500 (HK$0.83 x 2,250,000) was tendered by cheque.

22.  Under cover of a letter dated 11 June 2015[12] from Peter Cheung & Co to D, P served upon D an Exercise Notice[13] exercising the 2^nd Option (the “2^nd Option Exercise”) in respect of the first 50% of the 500,000 Shares (i.e. 250,000, the “2^nd Option Shares”, and together with the 1^st Option Shares, the “Option Shares”). Subscription Price in the sum of HK$188,500 (HK$0.754 x 250,000) was tendered by cheque.

23.  On 19 June 2015, Peter Cheung & Co wrote to D[14]. It was said inter alia that:

“… So far, we have not received any response from you apart from the telephone conversation with your Mr Chai saying that the process should take about a week or so the soonest.

We are instructed to inform you, which we hereby do, that it is our client’s intention to dispose of the 25,000,000 [sic.] shares of 39.HK in the open market once they are available …”

24.  D’s responses are recorded in the letter of 29 June 2015 from its then solicitors[15] Messrs Lawrence Chan & Co to Peter Cheung & Co (the 29/6/15 Letter”):

(a)  In respect of the 1^st Option:

(i)  D said that P was at the time when the 1^st Option was granted to him the Sales Director of Harbin China Distillery Co, Ltd (“Harbin Distillery”, a subsidiary of D), that it was only for that sole reason that P was an Eligible Person, but that P was dismissed by Harbin Distillery on 6 June 2013;

(ii)  D then stated that:

“Therefore, all of your client’s [1^st Option] have lapsed or expired in accordance with the terms of the Scheme long time before your client now purported to exercise them.”

(iii)  The 1^st Option Exercise was described as P’s “unsuccessful purported exercise”. The 1^st Option Certificate, the Exercise Notice (described respectively as “one purported option certificate” and “one purported exercise notice”), and the cheque tendered for the Subscription Price were returned;

(b)  In respect of the 2^nd Option, D did not admit that P was entitled to exercise the same. On that basis, P was requested to provide the original option certificate for D to “properly consider the application”. The 2^nd Option Exercise was said to be “unsuccessful”. The Exercise Notice (described as P’s “purported exercise notice”), and the cheque tendered by P for the Subscription Price were also returned.

25.  On 12 September 2015, another firm of solicitors for D (Messrs Kelvin Cheung & Co) issued a letter to Peter Cheung & Co[16] (the “12/9/15 Letter”). Therein it is said (with emphasis added):

“Under separate letter, we have asked you to provide the evidence of your client’s payment for acceptance of the Offer of Share Options dated 13^th September 2010 (i.e. the payment of the Option Price under Clause 4.3 of the Share Options Scheme of the Defendant Company.) However we have not yet received any of your reply. Pursuant to the said Offer, the last date for the Plaintiff to exercise the said option, in respect of the 2^nd tranche (i.e. 2,250,000 shares of the Defendant Company) is 12^th September 2015, i.e. today.

With a view to facilitate your client to have more time to present the evidence of the said payment (of the Option Price), the Defendant Company has resolved to extend the said date for your client to exercise the option (in respect of the said 2^nd tranche) by 18 days to 30^th September 2015.

All our client’s rights are hereby expressly reserved.”

Whilst a “separate letter” was mentioned therein, it has not been produced, and is not amongst the bundles.

26.  D has never issued to P any of those 2,500,000 (2,250,000 + 250,000) Option Shares.

27.  P says that he has as a result suffered loss and damage.

28.  A table setting out the historical stock price of the Shares between 4 February 2014 and 30 October 2015[17] has been placed before this Court. Between 4 February 2014 and 10 May 2015, the closing prices of the Shares had been below HK$1 (mostly between about HK$0.4 odd and HK$0.9 odd). Between 11 May and 30 October 2015, the closing prices fluctuated between about HK$1 odd and HK$3 odd. The highest closing price during that period was HK$3.25, which was recorded on 18 June 2015. Those on 19, 22 to 26, and 29 June 2015 (20, 21, 27 and 28 being Saturdays and Sundays) were HK$3.22, 3.22, 3.14, 3.12, 3.06, 2.97 and 2.58 respectively.

D.  Parties’ case on quantum

29.  P seeks damages in terms of the differences between the closing price of HK3.25 on 18 June 2015 and the Subscription Prices, namely HK$5,445,000 ((HK$3.25 – HK$0.83) x 2,250,000) for the 1^st Option Shares, and HK$624,000 ((HK$3.25 – HK$0.754) x 250,000) for the 2^nd Option Shares, in the total sum of HK$6,069,000[18].

30.  In the course of his oral opening, Mr Man realistically confirmed that he would not be inviting this court to adopt 18 June 2015 whether as the date of breach or as the date for assessment of damage. Instead, he submitted that 23 June 2015 should be adopted for that purpose. He relies on a letter dated 23 June 2015 from D to Union Registrars Limited[19] ( “URL” and the “23/6/15 Letter to URL”). In that letter, D referred to the Share Option Scheme, and enclosed for URL’s attention 3 Notices for Exercise of Options dated 17 June 2015 received from 3 grantees (not including P). A signed copy of the Board minutes dated 23 June 2015 “for approval of the allotment of the relevant shares” to the 3 grantees was provided to URL for record. Instructions were then given to URL to issue on 29 June 2015 share certificates to those 3 grantees accordingly. Mr Man submitted that there was no reason why P’s 1^st and 2^nd Option Exercises could not also have been dealt with and approved in that same Board meeting. Failure on D’s part to do so constituted breach, so that 23 June 2015 should be adopted as the date for assessment.

31.  D has on the face of pleadings raised a number of points on quantum. They are in gist:

(a)  The “Failure to Mitigate Point”:

(i)  D relies on the 12/9/15 Letter;

(ii)  It is claimed that P should have re-exercised the 1^st Option before the deadline extended thereby. If he had done so, he would have been allotted the Option Shares, which he could have sold in the market in late October or early November 2015. D avers that those profits should be deducted from any damages which may otherwise be awarded to P;

(b)  The “Inside Information Point”, that P as a director of D had been in possession of certain inside information within the definition of the Securities and Futures Ordinance, Cap 571 (the “SFO”), so that P was barred from dealing with any of the Option Shares (even if they had been issued) until the inside information had become public. The alleged inside information is said to relate to 5 different transactions:

(i)  The disposal of BAPP (Northwest) Limited (the “BAPP Disposal”), which was at the material time a wholly owned subsidiaries of D. It is claimed that P was barred thereby from dealing with any Option Shares until 15 June 2015[20];

(ii)  The subscription agreements with various subscribers for the subscription of a total of 39,800,000 shares, representing about 2.06% of D’s then existing share capital (the “Subscription Agreements”). It is claimed that P was barred thereby from dealing with any Option Shares until 30 July 2015[21];

(iii)  The Refreshment of Scheme Mandate of the Option Scheme (the “Refreshment of Scheme Mandate Limit” or “Refreshment”). It is claimed that P was barred thereby from dealing with any Option Shares until 24 July 2015[22];

(iv)  The Complaint to the SEHK against D (the “Complaint”). It is claimed that P was barred thereby from dealing with any Option Shares until 30 July 2015[23]; and

(v)  The Subscription of New Shares under Specific Mandate (the “Subscription of New Shares under Specific Mandate”). It is claimed that P was barred thereby from dealing with any Option Shares until 11 September 2015[24];

(c)  The “Date of Assessment Point”, that the earliest time when P could have sold any Option Shares should be decided with reference to the 30 days which the Board was permitted under Clause 6 of the Scheme Document to process P’s 1^st and 2^nd Option Exercises, and with reference to the proper procedures that should have been followed;

(d)  The “Notice Point”, that had the Option Shares been issued, and had P wanted to deal with them, P as a director of D would have been required to give notice to the Chairman of the Board or the designated director. P had not given such notices. In any event, given the time required for such notices to be considered, P would not have been able to sell the Option Shares on 18 or 19 June 2015.

32.  Relevant to D’s case on quantum, I record that:

(a)  On the first morning of the trial,

(i)  Mr Tso clarified that despite his Supplemental Opening Submissions, the Failure to Mitigate Point is not the only point that D is relying on;

(ii)  Mr Tso however confirmed that despite pleadings, D would no longer pursue:

(1)  in the context of the Inside Information Point, the BAPP Disposal;

(2)  the Notice Point, and

(3)  despite §45 of his written opening submission, the point arising from his submissions[25] that “only the writ of summons (issued 17 August 2015) could be regarded as a record evincing P’s intention to terminate any agreement reached between parties”;

(b)  On the second morning of the trial, in the course of his oral opening with reference to his 2^nd Supplemental Opening Submissions placed before this Court that morning, Mr Tso confirmed that in the context of the Inside Information Point, D would no longer rely on the Complaint;

(c)  In his written closing:

(i)  Mr Tso informs this Court that “upon reflection”, D will “abandon points concerning (i) Refreshment of Scheme Mandate Limit; and (ii) Subscription of New Shares under Specific Mandate.”[26]

(ii)  Mr Tso confirms[27] that the “‘bulk disposal’ calculation” and “average mid-price for 5 days’ calculation” raised in his previous submissions will no longer be pursued.

E.  The witnesses

33.  On quantum, P has testified. He adopted his 3 witness statements of 15 October 2017, 4 August 2018 and 16 May 2019 (“P/WS1”, “P/WS2” and “P/WS3” respectively) as his evidence in chief. He has been cross-examined by Mr Tso.

34.  For D, Mr Wong Wing Cheung (黃永祥, “Wong”) has been called. He has been D’s Accounting Manager. He adopted his 3 witness statements of 18 December 2017, 13 August 2018 and 17 December 2019 (“Wong/WS1”, “Wong/WS2” and “Wong/WS3” respectively) as his evidence in chief. He has been cross-examined by Mr Man.

35.  I find P to be an honest and truthful witness. His evidence is not inherently improbable, not contradicted by any contemporaneous documents or conduct, and not suffering from any inconsistencies (whether internally or externally). He also gave evidence in a forthcoming and direct manner. I accept his evidence.

36.  In relation to Wong, I am not inclined to make a general finding that he is overall reliable. He has given evidence in support of D’s RR-A Defence on liability, which has since been conceded. He has for example stated in Wong/WS1 §13 about P no longer being an Eligible Person after 6 June 2013. That is no longer being pursued. He has further confirmed in §14 of the same statement that P had not paid for the Option Price in respect of the 2^nd Option. His oral evidence in that regard is to the contrary. However, as I will explain below, various aspects of his oral evidence are in fact adverse to D’s case on quantum. I accept his evidence in those regards, in respect of which I see no reason why he would be untruthful.

F.  The Failure to Mitigate Point:

37.  I deal with the Failure to Mitigate Point first.

38.  The onus is on D to establish the same.

39.  The material pleading is §19A of the RR-A Defence. D refers to the 12/9/15 Letter. It pleads that by the same:

“[D] extended the deadline for [P] to exercise the 1^st Option (in relation to the 2^nd tranche of 2,250,000 shares) to 30^th September 2015. [D] avers that [P] did not exercise the 1^st Option during the said extended period and had no intention to exercise the 1^st Option. [D] further avers that [P] did not suffer from any loss, or alternatively, [P] has failed to mitigate his loss.”

40.  The plea is premised upon the 12/9/15 Letter having extended the deadline for P to exercise the 1^st Option in respect of the second 50%, and that D would have accepted P’s exercise of the 1^st Option if exercised within that extended period.

41.  I am not satisfied that D has established that. The reasons are as follows:

(a)  P made the 1^st Option Exercise on 10 June 2015. The original 1^st Option Certificate was produced, and the Subscription Price tendered;

(b)  According to Wong, whose evidence in this regard I accept, D’s practice was to accept the production of an Option Certificate as proof that the Option Price had been paid. Indeed, the 1^st Option Certificate issued to P in respect of the 1^st Option says that:

“This is to certify that the person named hereunder is the holder of the Option described below, subject to the terms of the Share Option Scheme …”

(c)  In response, D said in its 29/6/15 Letter (which terms and effects I have set out above) that the 1^st Option had “lapsed or expired” because, due to P’s earlier dismissal by Harbin Distillery, he had ceased to be an Eligible Person. D did not in that letter query the payment of the Option Price;

(d)  On 17 August 2015, the Writ with SOC indorsed was issued. Breach of the 1^st Option was pleaded;

(e)  Against such background, the 12/9/15 Letter was issued. I have also set out its contents above. There is no evidence that by that stage, D had withdrawn its stance that the 1^st Option had “lapsed or expired”. Nor was that D’s stance in the 12/9/15 Letter. All that was said therein was that D had resolved “to extend the said date for [P] to exercise the option … by 18 days” “[with] a view to facilitate [P] to have more time to present the evidence of the said payment (of the Option Price)”. There was nothing therein which suggested that the deadline otherwise than for the purpose of presenting the requested evidence had been extended, and still less any indication to any effect that had P re-exercised the 1^st Option with proof of payment of the Option Price before the extended deadline, D would have accepted the exercise;

(f)  Even up till now, there is still no evidence to that effect. It is noted in this regard that:

(i)  in its RR-A Defence (and all the previous versions), D continued to maintain that the 1^st Option had lapsed by 6 June 2013 when P was dismissed by Harbin Distillery; and

(ii)  Wong in Wong/WS1 (which he adopted as his evidence in chief) continued to state at §13 that P’s eligibility to participate in the Share Option Scheme was terminated upon his alleged dismissal on 6 June 2013;

(g)  D has further adduced no evidence showing why it sought evidence from P on the payment of Option Price in relation to the 1^st Option. P had been issued the 1^st Option Certificate. The “separate letter” mentioned in the 12/9/15 Letter has never been produced. Wong testified that D would as a matter of practice accept that as proof that Option Price had been paid. Save the possibility Wong volunteered in the course of cross-examination of the company secretary not having a full record (紀錄有損), Wong did not know why the request was made by D. Wong did not agree to the suggestion put to him during cross-examination that D would not have issued the Option Shares to P even if P had provided D with the evidence requested. But Wong made clear at the same time that he did not agree only because he was not clear about the situation, so that he could not agree (我唔可以同意，因為我唔清楚).

42.  On the evidence, and for the above reasons, I hold that D has failed to establish any failure on P’s part to mitigate by not seeking to exercise the 1^st Option again during the period between 12 and 30 September 2015.

43.  Further and in any event, if P were to exercise the 1^st Option again upon D’s alleged extension, P could have been taken to have accepted that his 1^st Option Exercise was not a valid one. Given the falling market, P’s interest could have been prejudiced thereby.

44.  The Failure to Mitigate Point fails.

H.  The Inside Information Point

45.  The relevant law is not in dispute. I set them out simply for ease of reference.

46.  Section 270(1)(a) of the SFO stipulates that:

“(1) Insider dealing in relation to a listed corporation takes place—

(a) when a person connected with the corporation and having information which he knows is inside information in relation to the corporation—

(i) deals in the listed securities of the corporation …”

47.  In Securities and Futures Commission v Yiu Hoi Ying Charles (2018) 21 HKCFAR 475, Chief Justice Ma observed at §36 that insider dealing involves five elements:

“(a) the corporation concerned must be publicly listed;

(b) the person concerned must be “connected with the corporation”, usually called a “connected person”;

(c) he or she must have information which constitutes “relevant information”, now referred to as “inside information”;

(d) he or she must know that such information is inside information; and

(e) he or she deals with the corporation’s listed securities with such knowledge.”

48.  “Inside information” in relation to a corporation is defined in section 245 of the SFO as meaning:

“specific information that—

(a) is about—

(i) the corporation;

(ii) a shareholder or officer of the corporation; or

(iii) the listed securities of the corporation or their derivatives; and

(b) is not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation but would if generally known to them be likely to materially affect the price of the listed securities”.

49.  Also in Yiu Hoi Ying, Chief Justice Ma observed at §41, with reference to the definition of “relevant information” in the previous statutory regime, which observations are also relevant under the current regime, that:

“There are accordingly four elements to this definition:

(a) the information must be specific;

(b) it must be about the corporation or its listed securities;

(c) it must be information which is not generally known to those who deal or are likely to deal in those securities, who might for brevity be called “the market”; and

(d) if the information were generally known to the market would be likely materially to affect the price of those securities, in other words, the information must be price sensitive.”

50.  As I have recorded above, even before his written closing, Mr Tso had confirmed that the BAPP Disposal and the Complaint would no longer be pursued.

51.  It is not clear on the face of pleadings as to what specific information which D seeks to rely on as inside information in relation to each of the 3 remaining relevant transactions. In the course of his oral opening, I invited Mr Tso to identify them for this Court. I invited him to address in particular the element of specificity. With respect, Mr Tso was not able to do so.

52.  As I have recorded above, the only transaction which D still seeks to rely on is the Subscription Agreements.

53.  D’s case is not supported by the evidence:

(a)  The relevant public announcement was dated 17 June 2015[28]. The public was informed of the Subscription Agreements. The public was also informed of the condition precedent that the related subscriptions were conditional upon the listing and permission to deal being granted by the Listing Committee of the SEHK;

(b)  D only made the application for listing on 9 July 2015, well after 23 June 2015 when P ceased to be a director;

(c)  Wong agreed to the suggestion put to him during cross-examination that P’s state of knowledge in respect of the chance of approval by SEHK was in fact no different from those of other outside investors;

(d)  Wong further agreed to the suggestion that P could not be said to have any inside information in relation to the Subscription Agreements;

(e)  In §19 of his written closing submissions, Mr Tso relies on a list setting out the identities of the 13 subscribers to the Subscription Agreements[29]. He submits that it constituted inside information. He relies on Wong’s evidence that “(i) when he dealt with the list, he kept it as secret; and (ii) the subscribers, be they not known to himself, might be very famous”;

(f)  In my view, the evidence relied upon does not even start to establish that that list contained or constituted any inside information. Wong’s decision to keep it secret does not mean that it contained inside information. It could be due to other reasons. When D’s only witness cannot point to any inside information therein, and could not say that any of the subscribers were celebrities, to submit that they “might be very famous” is with respect of no value;

(g)  One should further note that under cross-examination, Wong accepted that from that list, one could not tell whether the SEHK would grant any permission, or whether the Subscription Agreements would be completed;

(h)  In any event, given the date on that list (“15/6/2016” on its top left corner), there is serious question as to whether a copy of the same had been circulated to P before he left D.

54.  Whilst D is no longer seeking to rely on the Refreshment of Scheme Mandate and Subscription of New Shares under Specific Mandate, I record that:

(a) in respect of the former, when asked in the course of cross-examination as to what inside information P had in respect of this transaction, Wong said that he could not think of any; and

(b) in respect of the latter, when asked during cross-examination as to in what aspects of the transaction P had any inside information, Wong said that there should not be any;

(c) D’s averments in respect of those 2 transactions are bound to fail in any event.

55.  For the reasons set out above, D has failed to establish that P had been in possession of any inside information in respect of any.

56.  P’s case is that he had fallen out with the other 2 executive directors of D (Jiang Jianjun and Jiang Jiancheng, who are brothers). The 2 of them could form the necessary quorum to pass board resolutions. He had since about February 2015 not been circulated any company announcements. His evidence is that even if there were any inside information in relation to those transactions, he had no knowledge of them.

57.  P’s evidence in those regards is not contradicted by any direct evidence. Circulation of documents was not done by Wong. Any evidence from him in those regards was only based upon what Wong says was the company system.

58.  I do not find P’s evidence to be inherently improbable.

59.  I accept P’s evidence in those regards.

60.  Hence, in the absence of any knowledge by P of any inside information, the Inside Information Point in any event fails.

61.  In conclusion, I find that D has failed to establish and make good its allegations that P had been in possession of inside information in relation to the Subscription Agreements, or indeed any of the named transactions.

I.  The Date of Assessment Point

62.  In the light of my findings above, the Failure to Mitigate Point and the Inside Information Point are not engaged.

63.  In this case, the 1^st and 2^nd Options had been granted. The purpose of the present exercise is to assess the damages arising from the now admitted failure on D’s part to issue and allot to P the Option Shares upon the 1^st and 2^nd Option Exercises. The slightly more complicated issue in relation to the assessment of the value of an option right does not arise – compared with Lau Tin Cheung v Tianjin Development Holdings Ltd, HCA 422/2011, 12 December 2014 (§§77-79) (“Lau Tin Cheung (CFI)”), and the appeal arising therefrom, CACV 2/2015 (§§29-31) (Lau Tin Cheung (CA)).

64.  The normal measure of damages in a case of the present nature is succinctly explained and set out in McGregor on Damages, 21^st edition at §29-003, that:

“The normal measure of damages is the market price of the shares at the contractual time for delivery less the contract price. This represents the amount required to put the buyer in the position they would have been in had the contract been carried out, since to do so they must buy equivalent shares in the market.”

See also Bunge SA v Nidera BV [2015] 3 All ER 1082 §§76-80, and Hong Kong Zhixin Financial News Agency Ltd v China Maple Leaf Educational Systems Ltd [2022] HKCFI 2653, §§231-236, and 247-251.

65.  That normal measure of damages has already a built-in element of mitigation, in the sense that the innocent party “must buy equivalent shares in the market”.

66.  That purchase of equivalent shares in the market is a notional one. As Lord Toulson explained in Bunge at §§[79]-[81]:

“[79] The rationale is that in such a situation that measure represents the loss which may fairly and reasonably be considered as arising naturally, ie according to the ordinary course of things, from the breach of contract (Hadley v Baxendale). It is fair and reasonable because it reflects the wrong for which the guilty party has been responsible and the resulting financial disadvantage to the innocent party at the date of the breach. The guilty party has been responsible for depriving the innocent party of the benefit of performance under the original contract (and is simultaneously released from his own unperformed obligations). The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction.

[80] Whether the innocent party thereafter in fact enters into a substitute contract is a separate matter. He has, in effect, a second choice whether to enter the market—similar to the choice which first existed at the time of the original contract, but at the new rate prevailing (the difference being the basis of the normal measure of damages). The option to re-enter or stay out of the market arises from the breach, but it does not follow that there is a causal connection between the breach and his decision whether to re-enter or to stay out of the market, so as to make the guilty party responsible for that decision and its consequences. The guilty party is not liable to the innocent party for the adverse effect of market changes after the innocent party has had a free choice whether to re-enter the market, nor is the innocent party required to give credit to the guilty party for any subsequent market movement in favour of the innocent party. The speculation which way the market will go is the speculation of the claimant.

[81] It is well recognised that the so-called duty to mitigate is not a duty in the sense that the innocent party owes an obligation to the guilty party to do so (Darbishire v Warran [1963] 3 All ER 310 at 316, [1963] 1 WLR 1067 at 1075 per Pearson LJ). Rather, it is an aspect of the principle of causation that the contract breaker will not be held to have caused loss which the claimant could reasonably have avoided.”

67.  Mr Tso does not dispute the above general rule[30].

68.  In deciding the date to be adopted for assessment, Mr Man has cited to me the case of Durham Tees Valley Airport Ltd v BMI Baby Ltd and another [2011] 1 All ER (Comm) 731 is applicable and of assistance, wherein Patten LJ observed at §§[63] and [79] that:

“[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.

[79] None of the cases I have referred to has or could have questioned the principle laid down by the majority of the Court of Appeal in Abrahams’ case [1922] 1 KB 477 which is set out most clearly in the judgment of Atkin LJ. 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.”

69.  I do not accept Mr Tso’s submissions that the application of the above observations in Durham are confined only to cases where the contractual performance concerned involves the exercise of discretion. In my view, they equally apply to cases of the present nature when there were different manners in which the party in breach could have performed the contract.

70.  In the SOC, P pleads that he exercised Options on 10 and 11 June 2015 [§§7-8]. He pleads the letter of Peter Cheung & Co of 19 June 2015 informing D of his intention to sell the Option Shares once they were available [§9]. He pleads D’s reply via the 29/6/15 Letter [§§10-12]. He then pleads that at §§13 to 15 that:

“13.   [P] has exercised the 1^st Option and the 2^nd Option, which are and/or were valid and binding on [D], but [D] wrongfully refused to issue the option shares.

14.   In breach of the terms of the 1^st Option, [D] failed to issue the option shares to [P] …

15.  In breach of the terms of the 2^nd Option, [D] failed to issue the option shares to [P] ….”

71.  The SOC has not pinpointed any particular date as the date of breach (or assessment).

72.  I have summarized parties’ stances above. Mr Man submits, relying principally on the 23/6/15 Letter to URL, that the date of breach is 23 June 2015. Mr Tso, relying principally on Clause 6.2 of the Scheme Document, submits that the date of breach is 10 July 2015 (i.e. 30 days from the date of the 1^st Option Exercise)[31].

73.  Wong’s evidence in this regard, which I accept, is as follows:

(a)  For the purpose of considering Grantees’ exercises of options, while there was no fixed rule, the Board would usually meet once a month. That normally took place towards the end of each month. It could however be a couple of days earlier, or later (in which case it might take place in early part of the following month);

(b)  As revealed in the 23/6/15 Letter to URL, there was one such Board meeting on 23 June 2015 to consider such exercises;

(c)  P’s 1^st and 2^nd Option Exercises did provide the necessary documents, information and payment of the Subscription Prices, and satisfied the documentary requirements as set by the Scheme Document; and

(d)  P’s 1^st and 2^nd Option Exercises could have been considered also in the Board meeting on 23 June 2015.

74.  On those facts, I conduct the inquiry as to what D is to have been taken to have done had it in fact performed the contract. For that purpose, I make the counter-factual assumption that it had performed its contractual duties. In my views, on the evidence before me, D would have considered and approved P’s 1^st and 2^nd Option Exercises on 23 June 2015.

75.  I have considered in this regard Wong’s recollection that at the stage when P made the 1^st and 2^nd Options, there were some uncertainties in D’s records as to whether P had paid for the Option Price (though D has since checked the record and now accepts that P had paid the Option Price). I have considered whether the alleged uncertainties may make any difference. In my view, they will not. Firstly, I do not accept his evidence that there had been any genuine uncertainties in those regards. D had issued the 1^st and 2^nd Option Certificates. D’s practice had been to accept such certificates as proof of the relevant Option Prices. Secondly, there is no evidence that in fact, D did not consider P’s 1^st and 2^nd Option Exercises on 23 June 2015 because of those alleged uncertainties. Thirdly, it is D’s duties to keep proper record of those payments. The counter-factual assumption that D had performed its contractual duties must necessary entail the limb that D had properly kept its records in respect of P’s payment of the Option Prices. On the assumption that D had acted in good faith, it would have considered P’s 1^st and 2^nd Option Exercises on 23 June 2015.

76.  I have considered Clause 6.2 of the Scheme Document and Mr Tso’s submissions arising. Whilst D was permitted thereby to have 30 days, it does not mean that it would necessarily have taken the full 30 days in considering P’s 1^st and 2^nd Option Exercises. There is no evidence, direct or circumstantial, that it would have had if it had performed its contractual duties.

77.  I do not accept Mr Tso’s submissions that 10 July 2015 should be adopted as the date of breach or assessment.

78.  The above conclusion however does not lead to the conclusion that 23 June 2015 should be adopted as the date of assessment. As set out above, on the face of the 23/6/15 Letter to URL, whilst the instructions were given on 23 June 2015, the instructions were to issue the Option Shares on 29 June 2015.

79.  Hence, on the enquiry made above, had D performed its contractual duties, the Option Shares would only have been issued and allotted to P on 29 June 2015.

80.  Despite that fact, Mr Man submits that this Court is justified nonetheless in adopting 23 June 2015 (as opposed to 29 June 2015) as the assessment date. He relies on Lau Tin Cheung (CA) §26:

(a)  I am not persuaded by Mr Man’s submissions;

(b)  The breach in Lau Tin Cheung was failure to issue options (as opposed to failure to approved exercise of any granted option). Sakhrani J in Lau Tin Cheung (CFI) adopted a date subsequent to the date of breach. It was against such background that Barma JA made the observations at §26 of Lau Tin Cheung (CA), that:

“With respect, I do not think that the judge erred in adopting the method of quantification that he did. It is necessary to bear in mind that the defendant’s breach was its failure to offer the share options to the plaintiff upon completion of the probationary period of employment. As a result, the plaintiff was never given the opportunity to obtain the share options, or to exercise them, or to eventually realise the shares that they would have entitled him to acquire. The question was one of the value of the share options not provided to the plaintiff – this was a question that could only be answered by considering the likely course of events that would have followed upon the share options being offered to the plaintiff. As the share options were not in fact offered to the plaintiff, these events were necessarily hypothetical, and as such, admitted at various stages of a range of possible answers. Indeed, the value of the share options would fluctuate over time depending on the market price of the shares. In my view, by assessing the plaintiff’s damages as he did, the judge was in effect answering this question. Provided that the answer that he reached was justified on the material available to him, it is not one about which the defendant can complain.[32]”

(c)  Quite clearly, when considering the appropriate date to adopt, the assessing court will have to consider all the materials before it to decide whether it is justified;

(d)  I bear in mind the “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”[33]. I bear in mind also the “fundamental principle … of restitutio in integrum within the limits expressed in Hadley v Baxendale (1854) 9 Exch 341”[34];

(e)  In relation to the 23/6/15 Letter to URL, one cannot just pick out the plums and leave behind the duff. Had D performed its duties, and on the factual enquiry conducted above, P would only have been issued with, allotted and delivered the certificates for the Option Shares on 29 June 2015. In my view, adopting 23 June 2015 as the assessment date (when the value of the Shares was higher compared with 29 June 2015) would be unjustified, as that would put P in a position better than that if D had performed its duties, and would be inconsistent with the fundamental principles recited above;

(f)  By adopting 29 June 2015 as the assessment date, I am not confusing the separate matters explained by Lord Toulson in §§[79] and [80]. Rather, I adopt that date following and in compliance with the fundamental principles recited above;

(g)  The adoption of 29 June 2015 is also:

(i)  consistent with the normal measure of damages explained in McGregor, being “the market price of the shares at the contractual time for delivery less the contract price”, and

(ii)  in line with reality, that it was P’s intention to dispose of the Option Shares “once they are available” – see letter of 19 June 2015 from Peter Cheung & Co.

81.  For the reasons set out above, I adopt 29 June 2015 as the assessment date. For those same reasons, I do not accept Mr Tso’s submissions that the 10 July 2015 should justifiably be adopted.

J.  The assessment

82.  In the trial, parties have been using the closing prices of the Shares for the purpose of assessment. I accept that that is a valid reference.

83.  The closing price of the Shares on 29 June 2015 was HK$2.58.

84.  Using that as the reference, I assess the damages that should be awarded to P as follows:

(a)  In respect of the 1^st Option:

(HK$2.58 – HK$0.83) x 2,250,000 = HK$3,937,500

(b)  In respect of the 2^nd Option:

(HK$2.58 – HK$0.754) x 250,000 = HK$456,500

85.  The total amount so assessed becomes HK$4,394,000 (HK$3,937,500 + HK$456,500).

86.  I award to P the total amount of damages so assessed.

K.  Disposition

87.  I assess the damages at HK$4,394,000, and award P the same.

88.  Interest of that sum should be at prime plus 1% from the date of Writ till the date of this Judgment, and at judgment rate thereafter till payment.

89.  I make a cost order nisi that D shall bear the costs of the entire action, both on liability and assessment, including the costs reserved by the Judgment on Liability. Any application for variation should be made within 14 days of hand-down to the Clerk of this Court, upon receipt of which this Court may give further directions on papers with the view of disposing of the matter on the papers.