TOP EMINENT HEALTHCARE GROUP LTD (formerly known as CLSA PREMIUM LTD and KVB KUNLUN FINANCIAL GROUP LTD) AND OTHERS v. BANCLOGIX SYSTEM CO, LTD

HCA 1416/2019
& HCA 452/2020
(Heard together)

[2026] HKCFI 2869

HCA 1416/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1416 OF 2019

________________________

________________________

AND

HCA 452/2020

ACTION NO 452 OF 2020

________________________

_______________________

(Heard Together)

___________________

J U D G M E N T

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The Actions

1.  This is the trial of two actions which were ordered by the court to be heard together.

2.  The first action is HCA 1416/2019 (“HCA 1416”). The Plaintiffs are 4 companies in a group. They are: -

(i)  Top Eminent Healthcare Group Ltd. (“P1”);

(ii)  CA Premium International (HK) Ltd. (“P2”);

(iii)  CA Premium Pty Ltd. (“P3”) and

(iv)  CA Premium New Zealand Ltd. (“P4”).

(P1 – P4 shall hereinafter collectively be referred to as “the Plaintiffs”). The Defendant is a company called Banclogix System Co., Ltd. (“the Defendant”).

3.  The second action is HCA 452/2020 (“HCA 452”). The plaintiff therein is the Defendant and the defendant therein is P1.

The Parties and the Related Companies

4.  P1 (which was formerly known as “KVB Kunlun Financial Group Ltd.” and is also referred to as “KVBFG” or “FG”) is a company incorporated in the Cayman Islands in 2010. It was listed on the GEM Board of the Stock Exchange of Hong Kong Ltd. (“SEHK”) on 3 July 2013. It was subsequently transferred to the Main Board of SEHK on 15 December 2017. It specialized in the provision of leveraged foreign exchange (“forex”) trading services to predominantly Chinese customers residing overseas through its wholly-owned licensed subsidiaries in Hong Kong, Australia and New Zealand.

5.  The said licensed subsidiaries consist of P2, P3 and P4: -

(i)  P2 (which was formerly known as “KVB Kunlun International (HK) Ltd.”) was incorporated in Hong Kong and was licensed by Hong Kong’s Securities and Futures Commission (“the SFC”) to carry out leveraged forex trading from 20 October 2004 to 19 October 2023.

(ii)  P3 (which was formerly known as “KVB Kunlun Pty Ltd.”) was incorporated in Australia and was licensed by the Australian Securities & Investments Commission (“ASIC”) to provide financial services to retail and wholesale clients from 21 March 2003 to 17 November 2022.

(iii)  P4 (which was formerly known as “KVB Kunlun New Zealand Ltd.”) was incorporated in New Zealand and was licensed by New Zealands’ Financial Markets Authority (“FMA”) to carry out derivatives issuer licence holder activities from 3 November 2016 to June 2022.

It is not in dispute that none of the Plaintiffs is in the forex trading business anymore and that none of them remains licensed by the SFC, the ASIC or the FMA. Nor is any one of them being pursued by any regulatory authority.

6.  For the sake of convenience, the abovementioned companies will hereinafter collectively be referred to as “the Plaintiffs’ Group” or “the FG Group”. There were/are other minor subsidiary companies in the Plaintiffs’ Group which are not relevant to this case. Hence, they are not mentioned here. As can be seen from the explanation below, the Plaintiffs’ Group was once also known as the “KVB Group”.

7.  KVB Kunlun Holdings Ltd. (“KVB Holdings”) was incorporated in the British Virgin Islands on 11 April 2005.

8.  KVB Holdings has been the holding company of the Defendant which is its wholly-owned subsidiary. The Defendant has been engaging in the provision of IT Services such as software development, IT maintenance, infrastructure and hardware set up. It is principally engaged in the provision of IT services for customers in the financial services sector.

9.  The then “KVB Group” consisted of P1, P2, P3, P4 and the Defendant until Citic Securities Co., Ltd. (“Citic”) acquired a majority share in P1 from KVB Holdings. Hence, all those companies were once sister companies.

10.  On 29 May 2015, Citic acquired from KVB Holdings a 59% shareholding in P1 through its wholly-owned subsidiary Citic Securities Overseas Investment Co., Ltd. In 2025, Citic sold a major part of its interest in P1 to the Beijing Tong Ren Tong (Cayman) Ltd. and just remained as a minority shareholder of P1.

11.  Accordingly, after the said takeover by Citic, there was a separation of the companies. The Plaintiffs’ Group then comprised of P1, P2, P3 and P4 only. The Defendant ceased to be part of the Plaintiffs’ Group and remained as a wholly-owned subsidiary of KVB Holdings.

The Earlier Management of the Plaintiffs’ Group

12.  One Stephen Liu (“Liu”) was P1’s executive director and its Chief Executive Director between 9 November 2010 and 28 July 2019 when he resigned. Liu was also appointed as a director of P2 on 9 June 2004, a director of P3 on 26 August 2002 and a director of P4 on 6 September 2001. Liu was never appointed to any role in the Defendant.

13.  Liu was further appointed as managing director of the KVB Group in March 2006 and the Country Manager of New Zealand and Australia of the KVB Group in August 2011.

14.  Despite the said takeover by Citic in 2015, the general management and operational control of the Plaintiffs largely remained under the KVB Group at the material time.

15.  Citic did not even nominate its own directors onto the board of directors of P1 until 21 May 2018 when one Li Jiong and one Xu Jiangqiang were nominated by Citic and appointed as non-executive directors of P1 (out of a total of 9 directors).

The Relevant Agreements

(i)   The 2014 Agreement

16.  In 2014, P1 entered into a Master Agreement dated 29 January 2014 (“the 2014 Agreement”) with the Defendant in relation to the provision of IT Services to the Plaintiffs’ Group. The 2014 Agreement was specified to expire on 31 December 2015.

(ii)  The 2016 Agreement

17.  In 2016, P1 and the Defendant entered into another Master Agreement dated 19 April 2016 for IT services (“the 2016 Agreement”). The scope and terms of the 2016 Agreement were substantially similar to those in the 2014 Agreement except for an increased notice period from 1 month to 3 months and for a significant increase in the annual fee caps. It was specified to expire on 31 December 2018.

18.  The 2016 Agreement was subsequently amended twice, first on 12 August 2016 and next on 12 February 2018. The amendments basically provided for substantial increases in the fee caps, up to $37.5 million by 2018. This was because of P1’s request for the Defendant to provide further IT software under the 2016 Agreement and also because P1 had moved its listing from the GEM Board to the Main Board of the HKSE.

(iii)  The 2018 Agreement

19.  In 2018, 3 days before the expiry of the 2016 Agreement, P1 and the Defendant entered into a new Master Agreement dated 28 December 2018 (“the 2018 Agreement”).

20.  The meaning and effect of the 2018 Agreement (and incidentally also those of the 2014 Agreement and the 2016 Agreement) will be discussed below.

(iv)  Another Agreement dated 28 December 2018

21.  For the sake of completeness, it should be mentioned that P1 and KVB Holdings also entered into a separate agreement dated 28 December 2018 (“the 2^nd 2018 Agreement”). This agreement referred to earlier agreements between the same parties dated 18 December 2012, 13 June 2013 and 18 December 2015. It relates to “Services” provided by KVB Holdings to P1. Such “Services” were defined as “financial system services which include the provision of enterprise resources planning system support”.

22.  Neither the Plaintiffs’ Group nor the Defendant has based any of its arguments on this agreement in relation to HCA 1416. There is, however, reference to this agreement in relation to HCA 452. I shall deal with this later.

The Respective Main Cases of the Parties

(i)  The Plaintiffs’ Case

23.  In brief, the main contention of the Plaintiffs in HCA 1416 is that there are a number of implied terms in the 2018 Agreement and that the Defendant had been in repudiatory breach of such implied terms. Further, as a result of such implied terms, P1 was entitled to terminate the 2018 Agreement with the Defendant and claim relief, including declaratory and injunctive relief as well as damages against the Defendant.

24.  It is important to note that the Plaintiffs have made it clear that they are not alleging or basing their claim on any breach of any of the express terms of the 2018 Agreement or of any of the Statements of Work issued thereunder. Nor are they basing their claim on any alleged tortious act of misconduct on the part of the Defendant as opposed to their alleged acts in breach of contract.

25.  In the above circumstances, the Plaintiffs’ claim will primarily depend on whether they are able to establish the existence of the implied terms alleged by them. This is also the stance of the Plaintiffs.

(ii)  The Defendants’ Case

26.  In brief, the Defendant denies that the implied terms alleged by the Plaintiffs exist. On the contrary, the Defendant also argues that there are other implied terms based on the law of New Zealand which have the effect of countering the implied terms alleged by the Plaintiffs. In any event, the Defendant denies any breach of contract or wrongdoing by them as alleged by the Plaintiffs.

27.  In HCA 452, the Defendant also has a claim against P1 for outstanding service fees.

The Agreed List of Issues

28.  The parties have produced a relatively simple Agreed List of Issues. The issues listed are as follows: -

“1. Whether the terms pleaded by Ps in paragraph 11 of the ASOC (or any of them) (“Ps’ Implied Terms”) and/or the terms pleaded by D in paragraph 11 of the AD&CC (or any of them) (“D’s Implied Terms”) are to be implied into the IT Services Agreement. In determining the aforesaid issue, it may or may not be relevant to consider:

a. Whether Ps are entitled to the access, possession and/or ownership of Ps’ Data;

b. Whether Ps’ Implied Terms would expose D and/or Ps to any legal liability under New Zealand privacy laws; and

c. Whether the data management services sought to be implied under Ps’ Implied Terms are usually supplied as a separate service in the IT industry and/or necessary to perform D’s obligations under the IT Services Agreement.

2. If Ps’ Implied Terms ought to be implied into the IT Services Agreement, whether D was in breach of any of Ps’ Implied Terms.

3. Whether P1 had validly and lawfully (i) terminated the IT Services Agreement; and/or (ii) refused to honour its payment obligations to D thereunder.

4. Depending on the answer to Issue 3 above, what is the relief that ought to be granted in D’s favour as claimed in HCA 452/2020, including any agreed termination payment, outstanding fees and damages under the IT Services Agreement.”

The abovementioned issues will be referred to as “Issue 1”, “Issue 2”, “Issue 3” and “Issue 4” respectively.

29.  By the Order of Coleman J. made on 9 December 2021 by consent of the parties, if the Plaintiffs are successful, then the question of the entitlement of the Plaintiffs to damages will be tried before the same trial judge at a later trial. It can therefore be seen that the primary and predominant issue is Issue 1.

The 2018 Agreement

30.  In order to determine whether Ps’ Implied Terms can be established, it is necessary to examine first the express terms in the 2018 Agreement.

31.  In the Recital, paragraphs (A) and (C) read as follows: -

“(A)  Banclogix has from time to time provided the Services (as defined below) to KVB FG and its subsidiaries (collectively, “KVB FG Group”) in the ordinary and usual course of business and it is anticipated that KVB FG, for itself and on behalf of the other members of KVB FG Group, will continue to engage Banclogix to provide the Services in the ordinary and usual course of business of Banclogix.

(C)  Banclogix and KVB FG (for itself and on behalf of other members of KVB FG Group) have agreed to enter into this Agreement to set out the principal terms and conditions governing the provision of the Services in future.”

[emphasis added]

32.  Under Clause 1, the following definitions, inter alia, appear: -

“‘Agreement’	this Agreement as may be amended or supplemented by the parties hereto in writing;
‘Effective Date’	1 January 2019
‘Intellectual	means any and all intellectual property rights
Property Rights’	including (but not limited to) all of the following, and all rights in, arising out of, or associated therewith (in each case, whether registered or not): (i) patents; (ii) know-how, trade secrets, ideas, concepts, inventions, discoveries, developments, devices methods and processes (in each case, whether or not patentable); (iii) trademarks, service marks, business names and trade names; (iv) rights in any designs; (v) copyright, software, source codes, object codes, specifications and other works of authorship, databases and database rights; (vi) any and all other intellectual property rights, and related documentation with respect to all of the foregoing; (vii) any and all registrations of, or applications to register, or any rights to register or apply to register, any of the foregoing; and/or (viii) any similar or analogous rights anywhere in the world;
‘Services’	Provision of the following information technology services in the usual and ordinary course of business required by KVB FG and other members of the KVB FG Group as financial service providers:
		(i)  Software development services (as described in Schedule A-1 to this Agreement); (ii)  Software maintenance services (as described in Schedule A-2 to this Agreement); (iii)  IT infrastructure project management services (as described in Schedule B-1 to this Agreement); and (iv)  IT infrastructure maintenance services (as described in Schedule B-2 of this Agreement); ”

[emphasis added]

33.  Clause 2 reads as follows: -

“2. Duration

2.1. This Agreement shall be for a term commencing from the Effective Date and expiring on 31 December 2021 (both days inclusive) unless terminated earlier pursuant to Clause 4 of this Agreement or by agreement signed between the parties hereto.

2.2. This Agreement supersedes all previous agreements between the parties in respect of the Services including, without limitation, the Original Agreement which the parties agree shall be terminated with no further force or effect immediately prior to the Effective Date. “

[emphasis added]

34.  The relevant parts of Clause 3 read as follows: -

“3. Provision of services

3.1. Pursuant to the terms of this Agreement, Banclogix shall provide the Services to KVB FG Group, and KVB FG hereby agrees, and shall procure members of the KVB FG Group to agree, to the provision of the Services by Banclogix to it and other members of KVB FG Group hereunder.

3.4 In the event that Banclogix is engaged by KVB FG and/or other members of KVB FG Group to provide other information technology services which are not covered in the Services, the Company and such applicable member(s) of KVB FG Group shall enter into separate agreement(s) subject to the requirements under the Listing rules.

3.5. It is agreed between the parties that the maximum aggregate amount payable by KVB FG and/or other members of KVB FG Group to Banclogix pursuant to this Agreement for each of the three years ending 31 December 2019, 31 December 2020 and 31 December 2021 shall not exceed the amount of HK$25,000,000, HK$25,000,000 and HK$25,000,000 respectively (collectively, the “Cap Amounts”, and each a “Cap Amount”).

3.6. For the avoidance of doubt, for any amount incurred on or after 1 January 2019, KVB FG shall comply with the relevant continuing connected transactions requirements as set out in the Listing Rules, and in the event that such amount will exceed the permitted threshold under the Listing Rules, the parties shall then cease to perform their respective duties and obligations under this Agreement unless and until the relevant requirements under the Listing Rules are complied with. In the event that the above circumstances occur, Banclogix undertakes and warrants to KVB FG that it shall not claim against KVB FG or any other members of KVB FG Group for the cessation of performance of the obligations and duties under this Agreement.

3.7. It is acknowledged that since the transaction contemplated under this Agreement shall constitute continuing connected transactions of KVB FG Group under the Listing Rules, the performance of the duties and obligations under this Agreement by KVB FG shall be subject to compliance with the relevant requirements for continuing connected transactions under the Listing Rules.

3.8. Banclogix hereby acknowledges and agrees with KVB FG that if KVB FG Group is unable to comply with such requirements of the Listing Rules or if the payments received by Banclogix under this Agreement have reached the respective Cap Amount for each of the three years ending 31 December 2019, 31 December 2020 and 31 December 2021, the parties hereto shall cease to have any obligations to perform their respective duties under this Agreement unless and until the relevant requirements under the Listing Rules are complied with. In the event that the above circumstances occur, Banclogix undertakes and warrants to KVB FG that it shall not claim against KVG FG or any other members of KVB FG Group for the cessation of performance of the obligations and duties under this Agreement.

3.9. Banclogix undertakes to KVB FG that it shall, and shall procure its associates to, use their best endeavours to assist KVB FG in complying with the relevant requirements under the Listing Rules, in particular, Chapter 14A of the Listing Rules in relation to connected transactions. “

[emphasis added]

35.  Clause 4 reads as follows: -

“4. Termination

4.1. Either party may terminate this Agreement by giving the other party at least three months’ written notice of termination, provided that:

(a) in the event of termination by either party (the “Terminating Party”) on or before 31 December 2019, the Terminating Party shall pay 30% of the Cap Amount for the year ending 31 December 2019 as penalty to the other party (the “Terminated Party”);

(b) in the event of termination by the Terminating Party between 1 January 2020 and 31 December 2020 (both dates inclusive), the Terminating Party shall pay 10% of the Cap Amount for the year ending 31 December 2020 as penalty to the Terminated Party; or

(c) in the event of termination by the Terminating Party between 1 January 2021 and 31 December 2021 (both dates inclusive), the Terminating Party shall pay 5% of the Cap Amount for the year ending 31 December 2021 as penalty to the Terminated Party.

For the avoidance of doubt, both parties acknowledge and accept the above penalties as fair and reasonable.

4.2. Without prejudice to any rights and obligations to which any of the parties to this Agreement may be entitled to before its termination, the rights and the obligations of the parties under this Agreement shall terminate and be of no further effect upon the termination of this Agreement. Termination of this Agreement shall not prejudice the rights and obligations of the parties to the Agreements entered into prior to the termination of this Agreement.”

36.  Clause 5 reads as follows: -

“5. Intellectual Property Rights

5.1. KVB FG acknowledges and agrees that Banclogix is the sole and exclusive owner of all Intellectual Property Rights arising from or in connection with the Services.

5.2. Nothing in this agreement or otherwise grants to KVB FG or any member of the KVB FG Group any Intellectual Property Rights in any of the Services.”

37.  Clause 6 reads as follows: -

“6. Entire agreement and partial invalidity

6.1. This Agreement sets out the entire agreement and understanding between the parties hereto for the transactions contemplated herein and supersedes any previous agreements entered into between Banclogix and KVB FG in relation to the provision of the Services, whether written or oral.

6.2. If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect, the remaining provisions hereof shall in no way be affected or impaired thereby.”

[emphasis added]

38.  Clause 12 provides that the 2018 Agreement shall be governed by and construed in all respects in accordance with the laws of Hong Kong.

39.  I shall next set out the relevant parts of the Schedules referred to under the definition of “Services”.

(i)  Schedule A-1

(a)  Its title is “Software Development Services”. Under the heading “Designated Location”, the production site was specified to be various offices and data centres of the FG Group companies.

(b)  Under the heading “Services Included”, the services to be provided all relate to software development and equipment implementation. This is borne out by items 3 and 4 therein which read as follows: -

“3.  Statement of Work (“SOW”) – create SOW which details the proposed solution approach, hardware and network requirement, mandates required, project risk and high-level project schedule for KVB FG’s approval.

4.  Evaluate, recommend and procure software/hardware and network equipment – act on behalf of KVB FG and/or other members of the KVB FG Group to recommend, evaluate and procure software/hardware and network equipment required to support the operation of the software to be developed (“Software”). Follow KVB FG and other members of the KVB FG Group’s standard procurement procedure in procurement of software/hardware and network equipment. “

(c)  Under the heading “Software Development Fee”, the charges of a “Project Manager”, “System Analyst” and “Analyst Programmer” are specified on a daily basis.

(ii)  Schedule A-2

(a)  Its title is “Software Maintenance Services”. The “Designated Location” is the same as under Schedule A-1.

(b)  Under the heading “Services Included” the services provided all relate to the monitoring by the Defendant in order to maintain the healthiness of the Software as defined under Schedule A-1 and the operating system software and database. This is borne out by item 2 therein which reads as follows: -

“2. Support and Maintenance: Banclogix will perform support and maintenance services as defined in this Schedule A-2 to maintain the continuous operation of the Software. Support service is available 24 hours x 7 days per week, notified by monitoring devices and KVB FG or other members of the KVB FG Group’s phone/email request. Banclogix will document all reported issues, remedy actions and response time to resolve the issue.”

Under the heading “Software Maintenance fee”, an annual Software maintenance fee is specified.

(c)  Under the heading “Penalty”, it is provided:

“Banclogix guarantees that the Managed Services Availability of managed servers will be available 99.97% of the time in a given month during FX trading hours, excluding scheduled maintenance.”

[emphasis added]

The details of the penalty under various circumstances are then set out.

(d)  It is therefore quite clear that Schedule A-2 is about trouble-shooting by the Defendant in the event of anything going wrong during trading hours.

(iii)  Schedule B-1

(a)  Its title is “IT Infrastructure Project Management Services”. The “Designated Location” is the same as under Schedules A-1 and A-2.

(b)  The “Services Included” relate to management by the Defendant for the setting up of the IT Infrastructure Project. This is borne out by item 5 therein which reads as follows: -

“5. Project documentations at different phases – provide project documents including:

• At project preparation stage – project brief, project plan, project approach, acceptance criteria and test plan

• At project start stage – project initialization plan

• At implementation stage – stage plan, issue log, risk log, change management log, checkpoint end highlight report

• At completion stage – end project report, user manual/guideline, and lesson learned report after project handover.”

(c)  This is further borne out under the heading “Delay Penalty” which provides for a “Delay Penalty” to be paid by the Defendant if it failed to meet the Project Completion Date as agreed in the SOW.

(iv)  Schedule B-2

(a)  Its title is “IT Infrastructure Maintenance Services”. Again the “Designated Location” is the same as the previous Schedules.

(b)  The “Services Included” read as follows: -

“BancLogix will provide the following IT Infrastructure Maintenance Services:

1. IT Service Management: Including IT Service Desk and Operations service. Incidents will be tracked and followed up per defined workflow and procedure. Change Management Service will be provided as well.

2. IT Monitoring and Escalation: 24x7 IT Monitoring will be provided with Automated System Monitoring Platform and Escalation Procedure Framework. Actual Monitoring Rules and Thresholds will be provided by the respective system and application owners.

3. IT System and Web Maintenance Services: Covering all KVB FG IT System Hosting, Web Infrastructure Hosting and related Information Security Support. Web Development and Content Maintenance are out of scope.

4. SAP Services: BancLogix will provide SAP Services and respective Infrastructure Support.

5. IT Solution Consultancy: BancLogix will assist KVB FG to evaluate and select appropriate technology solution or IT platform.”

[emphasis added]

(c)  Under the heading “Penalty”, it is provided: -

“Banclogix guarantees that the Managed Services Availability of managed servers will be available 99.97% of the time in a given month during FX trading hours, excluding scheduled maintenance.”

[emphasis added]

There then follows a detailed table as to how the penalty is calculated if the Defendant does not perform as guaranteed.

40.  It can be seen that all the provisions in the 2018 Agreement, in particular, the Schedules thereto, had been drafted in considerable detail.

Ps’ Implied Terms as Pleaded

41.  In paragraph 11 of the Amended Statement of Claim, the Plaintiffs plead as follows: -

“11. To give business efficacy to the IT Services Agreement in light of the business nature of the Plaintiffs’ Group, it was the true intention of the parties that the following are implied terms of the IT Services Agreement, particularly in view of the Licensed Subsidiaries’ regulatory and statutory obligations as pleaded above:

11.1 The Defendant shall, on the 1^st Plaintiff’s and/or the Licensed Subsidiaries’ demand, provide to the 1^st Plaintiff and/or the Licensed Subsidiaries full and unrestricted access (including administrator rights) to all of the Plaintiffs’s Data (as defined below) which were and are kept, hosted and/or stored (i) on databases and/or servers accessible, owned and/or maintained by the Defendant (including those owned by the Plaintiffs’ Group or by a third party but maintained by the Defendant), (ii) on any storage devices or medium and/or (iii) any back-up tapes (items (i) to (iii) collectively the “Storage Devices”), which were and are kept by or maintained by the Defendant on behalf of the Plaintiffs’ Group for the purpose of the IT Services Agreement (the “Duty to Provide Access”).

11.2 The Defendant shall maintain and shall not delete or dispose of any of the Plaintiffs’s Data save in its ordinary course of business which were and are kept, hosted and/or stored on the Storage Devices, without the prior consent of the 1^st Plaintiff and/or the Licensed Subsidiaries (the “Duty Not to Delete”);

11.3 For all such Plaintiffs’s Data stored, hosted and/or kept by the Defendant on the Storage Devices, the Defendant shall keep and maintain reasonable back-up files or tapes, and that such back-up files or tapes are the property of the 1^st Plaintiff, the Licensed Subsidiaries and/or the Plaintiffs’s Group (the “Duty to Keep Back-up”).

11.4 The Defendant shall, on the 1^st Plaintiff’s and/or the Licensed Subsidiaries’ demand, deliver the same and/or to provide copies of the relevant Plaintiffs’ Data to the 1^st Plaintiff and/or the Licensed Subsidiaries (the “Duty to Deliver”).

11.5 Insofar as the Duty to Provide Access and the Duty to Deliver are concerned, the Defendant shall at the same time provide the 1^st Plaintiff with the necessary software to enable the Plaintiffs’ Group to have access to or otherwise to decode or reconfigure the Plaintiffs’ Data in legible or comprehensive form;

11.6 The Defendant shall comply with the aforesaid duties in respect of the Plaintiffs’ Data which it kept, hosted and/or stored in light of the Previous Agreements as well as those which the Defendant continued to keep, host and/or store upon and since the conclusion and entering into of the IT Services Agreement; and

11.7 The Defendant shall comply with the abovementioned duties for such periods as is necessary to enable the 1^st Plaintiff and/or the Licensed Subsidiaries to fulfil their statutory and regulatory duties as pleaded above, even in the event of termination of the Previous Agreements and/or the IT Services Agreement, until and unless a full set of the Plaintiffs’ Data kept, hosted and/or stored by the Defendant (in legible or comprehensive form) has been provided to the Plaintiffs’ Group or, alternatively until and unless when the Defendant has allowed the Plaintiff’s Group full access to the same and reasonable time to make a full copy of the same.”

(“Ps’ Implied Terms”)

D’s Implied Terms as pleaded

42.  In paragraph 11 of the Amended Defence and Counterclaim, the Defendant pleads as follows: -

“11.  The Defendant further avers that, having regard to the circumstances under which the IT Services Agreements were made (including the 1^st Plaintiff’s multi-jurisdictional and/or cross-border operations and clientele as well as the fact that data is stored in more than one jurisdiction), the IT Services Agreement contains the following implied terms (as a matter of law and/or to give business efficacy thereto and/or to reflect the parties’ obvious common intention) (“D’s Implied Terms”):

(a)  Notwithstanding clause 12 of the IT Services Agreement, the Defendant is not obliged to perform any of its obligations under the IT Services Agreement in any way insofar as such performance would amount to a contravention of the law or regulations of Hong Kong and/or other jurisdictions.

(b)  The 1^st Plaintiff shall not, and has no right to, make any request or demand under the IT Services Agreement which would have the effect of causing the Defendant (including any of the Defendant’s subsidiaries and/or its officers or staff members) to act in breach of the laws or regulations (whether of Hong Kong and/or other jurisdictions).

(c)  The 1^st Plaintiff shall fully indemnify the Defendant (and/or its subsidiaries, officers and staff members) in the event that the Defendant (and/or any of its subsidiaries, officers and staff members) suffers any loss or damages as a result of the contravention of laws or regulations arising from the performance of the 1^st Plaintiff’s request or demand made under the IT Services Agreement. “

(“D's Implied Terms”)

The Law on Implied Terms

43.  There is no dispute between the parties on the law on implied terms in a contract which is well established. The parties only differ on the application of the law to the facts of the case.

44.  The starting point on the survey of the law is the case of Kensland Realty v Whale View Investment (2001) 4 HKCFAR 381. In that case, Bokhary PJ said at paragraph 23 as follows: -

“23. In my view, any term to be implied in this context must comply with the conditions stated by Lord Simon of Glaisdale when delivering the advice of the majority in the Privy Council case of BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at p.26:

(1) It must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

The conditions referred to in the said paragraph 23 above will be referred to hereinafter as “the 5 Conditions”.

45.  As to the approach in the application of the 5 Conditions, guidance can be obtained from the judgment of the Court of Appeal in Hong Kong in the case of Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd. [2019] HKCA 261. In that case, the Court of Appeal first of all referred to the observations of Lord Hoffmann in the case in the Privy Council of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1998 at paragraphs 16 – 27. In the subsequent case of Marks & Spencer plc v BVP Paribas Securities Services [2016] AC 742, the UK Supreme Court clarified that the law on implied terms had not been changed by the observations of Lord Hoffmann in the Belize case. In paragraphs 26 – 28 of his judgment, Lord Neuberger PSC said as follows: -

“26. I accept that both (i) construing the words which the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract. However, Lord Hoffmann’s analysis in the Belize Telecom case could obscure the fact that construing the words used and implying additional words are different processes governed by different rules.

27. Of course, it is fair to say that the factors to be taken into account on an issue of construction, namely the words used in the contract, the surrounding circumstances known to both parties at the time of the contract, commercial common sense, and the reasonable reader or reasonable parties, are also taken into account on an issue of implication. However, that does not mean that the exercise of implication should be properly classified as part of the exercise of interpretation, let alone that it should be carried out at the same time as interpretation, When one is implying a term or a phrase, one is not construing words, as the words to be implied are ex hypothesi not there to be construed; and to speak of construing the contract as a whole, including the implied terms, is not helpful, not least because it begs the question as to what construction actually means in this context.

28. In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term. This appeal is just such a case. Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied. Having said that, I accept Lord Carnwath JSC’s point in paragraph 71 to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term, but, even if that is right, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication.”

[emphasis added]

46.  The Court of Appeal in the Lo Yuk Sui case next referred to what Lord Neuberger PSC further said about the 5 Conditions and also referred to a summary of the law given by Lord Hughes in the later case of Nazir Ali v Petroleun Company of Trinadad and Tobago [2017] UKPC 2 in paragraphs 31 and 32 of their judgment as follows: -

“31. These requirements [the 5 Conditions] were commented upon by Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities Services, supra at [21]:

‘I would add six comments on the summary given by Lord Simon in the BP Refinery case 180 CLR 266, 283 as extended by Bingham MR in the Philips case [1995] EMLR 472 and exemplified in the APJ Priti [1987] 2 Lloyd’s Rep 37. First, in Equitable Life Assurance Society v Hyman [2022] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, paragraph 27, although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posted by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts 5^th ed (2011), p 300, paragraph 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.’

32. We respectfully agree with these comments. In the more recent decision of the Privy Council in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2, Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed) summarized the law at [7]:

‘It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.’ ”

[emphasis added]

47.  Regarding the requirement of ‘necessity’, guidance can be obtained from the case of High Route Ltd. v Wong Chung Kai [2025] 1 HKLRD 778 decided by the Court of Appeal. In that case, the plaintiff and the defendant entered into a provisional agreement for the sale and purchase of the entire shareholding in a company (the PSP). The defendant was the sole shareholder and director of the company. The plaintiff purchaser refused to complete on the basis that it was not satisfied with the due diligence investigation on the company. It sued for the return of the deposit and for damages. The plaintiff argued that (i) the plaintiff should be entitled to carry out due diligence investigation on the business, financial, legal and all other aspects of the company, and (ii) completion was conditional upon the plaintiff having completed its due diligence investigation on all aspects of the company and was satisfied with the results. The trial Judge found against the plaintiff on the basis that the alleged implied terms could not be implied into the agreement. At the trial, the plaintiff argued that the question of whether it was satisfied with the result of the due diligence investigation should be determined on a subjective basis. The plaintiff appealed. On the appeal, the plaintiff reformulated its case and argued that the question of whether it should have been satisfied with the result of the due diligence investigation should be assessed by reference to the objective standard of a notional reasonable purchaser (instead of the subjective approach argued at the trial).

48.  Regarding the change of the plaintiffs’ case, the Court had reservations whether such significant change should be permissible. In any event, the key components of the alleged implied terms should have been pleaded in the statement of claim.

49.  Despite the above, the Court nevertheless considered the alleged implied terms as changed for the sake of completeness. The Court held that the alleged implied terms could not be implied into the agreement because the plaintiff would have been able to rely on other provisions in the agreement and the general law for remedies in case there was a breach by the defendant. The reasoning of the Court appears in paragraphs 55 – 58 of the Judgment as follows: -

“55. The bargain made in the PSP was that if any of the warranties given by the vendor was not fulfilled, the remedy of the purchaser was to sue for breach of warranty and seek indemnification under cl.3. Mr Li further made the point that if there is fundamental breach of the terms of the PSP, the purchaser can invoke the remedy of rescission. He also pointed out it is telling that according to the evidence of the plaintiff’s property manager Ms Wong, if the plaintiff had known that Keen Day was not a ‘simple holding company whose only asset and business pertained to the Property’ but “had actively engaged in other investments and trading activities”, she “would have requested for further indemnity and insisted on a much longer period of guarantee in order to protect the Plaintiff’s interests.

56. It may be argued that the warranties, indemnities and guarantee in the PSP do not give as much protection to the purchaser as compared to a right to refuse completion by making the transaction conditional upon the purchaser being satisfied with the due diligence results. That is beside the point, as it was not the bargain made between the parties. The process of implying a term into the contract “must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated”. It cannot be said that the PSP would lack commercial or practical coherence without providing that the purchaser is entitled to refuse completion if he is not, acting reasonable, satisfied with the results of due diligence. The concept of necessity must not be watered down.

57. The PSP also provided in cl.4 that completion is conditional upon the company and/or the vendor showing good title to the Property and that the purchaser is entitled to cancel the transaction with refund of the deposit if the vendor should fail to show good title. Clauses 7 and 8 made clear that completion is conditional only upon the condition in cl.4. All other situations where there is failure to complete would amount to breach of contract with the legal consequences provided in cls.7 and 8. To imply a term that completion is conditional in an additional situation where the purchaser is not satisfied with the due diligence results would be inconsistent with the express terms in cls.4, 7 and 8 and tantamount to re-writing the bargain of the parties.

58. Thus, the implied term proposed by the plaintiff “does not fit with the substance of the parties’ rights and obligations under the express terms of the contract or their express allocation of the risk of the occurrence of a particular event”, and the existence of an express term covering what should constitute a condition precedent for completion “makes the co-existence of a further implied term on the same subject unlikely”. If there is an express term in the contract which is inconsistent with the proposed implied term, “the latter cannot, by definition, meet [the tests for necessity], since the parties have demonstrated that it is not their agreement’. “

[emphasis added]

Hence, the plaintiff failed because the requirement of necessity was not satisfied.

50.  Another case which is relevant to the question of necessity and which demonstrates the point made in the last sentence in paragraph 58 of the Judgment of the Court of Appeal in the High Route case as set out in paragraph 49 above is the case of Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd. (Trading as Medirest) [2013] BLR 265 decided by the English Court of Appeal. In that case, there was a contract between the plaintiff, the Trust, and the defendant, Medirest, whereby the latter would provide catering and cleaning services over a period of seven years at a hospital in Essex. The facts are quite complicated. For present purposes, Clause 5.8 of the contract is relevant. It reads as follows: -

“5.8.  The Trust or any Beneficiary shall ascertain whether the contractor’s provision of the Services meets the performance criteria as specified in the Service Level Specification or, if the criteria are not so specified, meets the standards of a professional provider of the Services. Where such performance criteria or standards have not been met by the contractor in the performance of the Services then the Trust shall be entitled to levy payment deductions against the monthly amount of the Contract Price payable to the contractor in accordance with the terms of the Payment Mechanism. In addition, the Trust may by notice to the contractor award Service Failure Points depending on the performance of the Services as measured in accordance with the Service Level Specification. Service Failure Points which are agreed or determined to have been awarded in circumstances where such award was not justified shall be deemed to have been cancelled. “

Each of the parties alleged that the opposite party had been in breach of the contract. The judge at first instance found as follows: -

(i)  The Trust’s conduct from January 2009 onwards constituted a breach of its obligation to “co-operate … in good faith” under clause 3.5.

(ii)  The Trust had a power under clause 5.8 and the Payment Mechanism to make deductions from monthly payments and to award service failure points. There was an implied term that, in exercising this power, the Trust would not act in an arbitrary, capricious or irrational manner.

(iii)  In breach of the implied term, the Trust exercised its power under clause 5.8 and the Payment Mechanism in an arbitrary, capricious and irrational manner.

(iv)  Medirest’s termination notice under clause 28.4 was valid. This would, absent the Trust’s notice of termination, have brought the contract to an end on 27 October 2009.

(v)  The Trust’s termination notice under clause 28.1 was also valid. This was because Medirest had exceeded the threshold of 1,400 service failure points in the preceding six months. This notice brought the contract to an end on 23 October 2009.

(vi)  The Trust was in repudiatory breach of contract until 21 September 2009. Medirest did not, however, terminate for repudiatory breach.

(vii)  Since both parties were entitled to terminate, neither could succeed in its substantial claims for post termination losses.

The Trust appealed to the Court of Appeal.

51.  For present purposes, I will only concentrate on the point about necessity. The relevant paragraphs in the judgment of the Court of Appeal are as follows: -

“84. The question therefore arises whether clause 5.8 of the Conditions in the present case confers a discretion such as to give rise to that implied term. The judge held that it did. The Trust contends that the judge was wrong to do so.

85. Mr Collins submits that the judge erred in holding that the Trust had a discretion in relation to the awarding of service failure points or the making of deductions. The contract contains precise rules as how service failure points and deductions should be calculated. This leaves no room for any discretion. Accordingly there can be no implied term requiring the Trust not to act in an arbitrary, irrational or capricious manner when assessing these matters.

91. The discretion which is entrusted to the Trust in relation to service failure points and deductions in the present case is very different from the discretion which existed in the authorities discussed above. The Trust is a public authority delivering a vital service to vulnerable members of the public. It rightly demands high standards from all those with whom it contracts. There may, of course, be circumstances in which the Trust decides to award less than the full amount of service failure points or to deduct less than it is entitled to deduct from a monthly payment. Nevertheless the Trust could not be criticized if it awards the full number of service failure points or if it makes the full amount of any deduction which it is entitled to make. The discretion conferred by clause 5.8 simply permits the Trust to decide whether or not to exercise an absolute contractual right.

92. There is no justification for implying into clause 5.8 a term that the Trust will not act in an arbitrary, irrational or capricious manner. If the Trust awards more than the correct number of service failure points or deducts more than the correct amount from any monthly payment, then that is a breach of the express provisions of clause 5.8. There is no need for any implied term to regulate the operation of clause 5.8. “

[emphasis added]

Hence, the Court allowed the appeal in favour of the Trust.

52.  In the case of Lau Chun Ming v Deloitte Touche Tomatsu (a firm) [2022] HKCFA 8, the plaintiff entered into a contract with the defendant firm whereby the latter covenanted to provide two of its partners to act as trustees of a bankrupt estate in respect of which the plaintiff was a creditor and to help him to deal with the charged assets. He later discovered that the trustees had been late in instituting claims concerning some assets which were met with limitation defences which led to a settlement which he claimed was not sufficient. He therefore claimed against the defendant on the basis that there was an implied term in the contract to the effect that it would ensure that the trustees would act with reasonable care and skill as trustees of the bankrupt estate and conduct appropriate investigations regarding the bankrupts property. He lost both at first instance and in the Court of Appeal. He sought leave to appeal to the Court of Final Appeal.

53.  The Court of Final Appeal refused to give him leave mainly on two grounds: -

(i)  His claim was brought solely for his own benefit and was not subject to the supervision of the bankruptcy court.

(ii)  There was no justification for implying the term into the contract as alleged by the plaintiff.

54.  In paragraphs 12 and 13, the Court said as follows: -

“12. The pleaded term is thus not about implying the standard of skill and care required in the performance of an expressly agreed investigative duty. It suggests that one can contractually imply a substantive investigative duty as implicit within a duty to use reasonable professional skill and care. Moreover, as stated above, it is sought to imply this as an obligation owed solely to Mr Lau and not to the creditors or the estate as a whole. It is sought to be argued that implication of such an investigative duty arises as an intrinsic incident of the relationship between the parties to the contract.

13. However, as appears from the face of the agreement, Deloittes agreed merely to assign two partners to assume the functions and responsibilities of trustees in bankruptcy, ie, to act in accordance with the statutory code in the BO governing the activities of such trustees. It is a highly detailed code which proceeds on an entirely different basis from Mr Lau’s personal claim. It governs the appointment by the creditors of trustees who are to perform defined tasks for the benefit of the creditors and the estate as a whole, under the control of the court and taking directions from the creditors’ committee or creditors in general meeting. The trustees are remunerated by the creditors and seek to secure, administer and distribute the bankrupt’s property amongst them as a body, owing fiduciary duties to them and owing duties to the court. The bankrupt is obliged to cooperate and to disclose his property, facing penalties for default. In other words, the Ordinance lays down a scheme which collectively involves the court, the trustees, the creditors and the bankrupt to regulate the consequences of the insolvency. It is obviously qualitatively different from Mr Lau’s personal contractual claim.”

[emphasis added]

55.  In the case of Bank of Baroda v GVK [2023] EWHC 2662 (Comm), the claimants were some Indian banks and the defendants were borrowers/lenders incorporated in India/Singapore. The loan facility documents specified that they were governed by English law. The defendants defaulted in repayment and the claimants sued them in England. The defendants put forward various arguments and both sides adduced expert evidence on Indian banking and insolvency laws. One of the arguments advanced by the defendants was that there was an implied term in the loan agreements in the following terms: -

“… It was an implied term of the 2011 and 2014 Agreements that the Claimants were all regulated by and had to adhere to the Reserve Bank of India regulations for the purpose of the instant contracts. Such implied term [was that]: “The Claimants, whether their branches are located in India or abroad, are subject to the regulatory oversight of the Reserve Bank of India and/or Government of India. The Claimants must abide by any circulars the Reserve Bank of India might issue from time to time or any other mandatory Indian law unless they have specific permission from the Reserve Bank of India or the Indian Government to derogate from those circulars or other law.”

It was submitted that such implied term would prevent the claimants from suing the defendants.

56.  Dame Clare Moulder DBE sitting as a Judge of the High Court ruled as follows in her Judgment: -

“91.  The Defendants’ case based on an implied term can be disposed of shortly. The test is well known under English law, being that stated by Lord Neuberger in Marks and Spencer Plc v BNP Paribas, as referred to in Duval v 11-13 Randolph Crescent Ltd at [51] [2020] UKSC 18. The term to be implied must be necessary to give business efficacy to the contract or so obvious that “it goes without saying”. A way of assessing whether a term is necessary to give business efficacy to a contract is to consider whether without the term the contract would lack commercial or practical coherence.

92.  In my view, it is not necessary to give business efficacy to the Facility Agreements to imply a term that the lenders must abide by any circulars the Reserve Bank of India might issue from time to time or any other mandatory Indian law. The lenders will have to comply with whatever regulatory rules apply to them, but this does not mean that the borrower needs to have rights in that regard under the contract in order to give effect to the lending arrangements under the Facility Agreements.”

In the end, she gave judgment for the claimants.

57.  From the authorities referred to above, the following main principles regarding implied terms in a contract can be drawn: -

(i)  The first task which the court has to perform is to construe the express terms of the contract before considering whether terms can be implied into it.

(ii)  A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed if it had been suggested to them.

(iii)  The implying of a term into a contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers, to the agreement which the parties have negotiated.

(iv)  A term proposed to be implied must be formulated with the utmost care and precision.

(v)  A term cannot be implied unless it is strictly necessary for business efficacy. A term is to be implied only if it is necessary to make the contract work. In other words, a term can only be implied if, without it, the contract would lack commercial or practical coherence.

(vi)  If there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot meet the necessary test because the parties have demonstrated that it is not their agreement.

(vii)  Hence, if there is an express term in the contract which deals with the whole or a part of the situation envisaged in the proposed implied term, such proposed term cannot be implied into the contract.

(viii)  Normally, there can be no implied term (as opposed to an express term) to the effect that one contracting party should assist the other contracting party to comply with any regulatory or statutory duty which is to be performed or owed by the latter itself alone.

58.  There is an additional point which is trite and well established by other authorities. If the contract had been concluded and/or drafted and/or vetted by legal advisers on both sides after negotiation and/or vetted by other experts, then it is unlikely that there would still be room for implying other terms. See Fraser Turner v Price Waterhouse Coopers [2019] PNLR 33 at paragraph 33 and Jay & Peace.com Inc. v Topshow Consultants [2002] 2 HKC143 at paragraph 23.

The Relevant Background Facts

59.  At this juncture, it would be pertinent to refer to some of the relevant background facts and to what the parties say about them.

60.  P1 had specialized in the provision of forex trading services to predominantly retail Chinese clients residing overseas through its licensed subsidiaries, P2, P3 and P4, respectively in Hong Kong, Australia and New Zealand, with the great majority of them being in New Zealand. The plaintiffs and their clients used an electronic platform consisting of different versions of the live forex trading system called “ForexStar” (“Trading System”). Their clients were enabled to execute trades in forex with P1 through a desktop application created by the Defendant.

61.  As mentioned in paragraph 5 above: -

(i)  P2 was licensed by the SFC to carry out leveraged forex trading from 20 October 2014 to 19 October 2023.

(ii)  P3 was licensed by the ASIC to provide financial services to retail and wholesale clients from 21 March 2003 to 17 November 2022.

(iii)  P4 was licensed by the FMA to carry out derivatives issuer licence regulated activities from 3 November 2016 to June 2022.

62.  Since its inception, P1 had shared common IT servers and facilities with the KVB Group. For example, both P1 and the KVB Group subsidiaries stored their files on the same employee-shared drive and shared the use of the internet domain “KVB Kunlun” and also the email domain of “KVBKUNLUN.com”.

63.  Following the takeover by Citic, in 2015, the SFC gave direction to P1 to stop sharing a domain with its non-listed entities and to set up its own independent domain. Accordingly, in mid-2015, the Plaintiffs initiated a segregation project to separate P1’s data from that of the KVB Group (“Segregation Exercise”). P1’s data was relocated to the data centre of Equinix HK and the data of P2, P3, P4 and the Defendant was relocated to a data centre of CITIC Telecom CPC. The Segregation Exercise was conducted in a piecemeal manner and remained incomplete. It was reinitiated in 2019.

64.  As noted above, on the expiry of the 2014 Agreement, the 2016 Agreement was entered into and on the expiry of the 2016 Agreement, the 2018 Agreement was entered into. Both the 2014 Agreement and the 2016 Agreement had been approved by P1’s shareholders and board of directors (with interested directors abstaining from voting). They were vetted by an independent financial advisor, Octal Capital Ltd., which concluded that their terms were fair and reasonable and in the interests of the Plaintiffs and their shareholders. It also emerged from the evidence at the trial that at least for the 2018 Agreement both sides were advised by lawyers.

65.  In line with the amendments made in the 2016 Agreement, P1 agreed with the Defendant by way of SOWs to carry out various upgrades to the IT infrastructure and software of the Plaintiffs. They included the following: -

(i)  The Relocation Exercise

(a)  In 2015, there was already an internal proposal for a data centre relocation because the Defendant’s original data centre could no longer meet its business needs and demands (‘Relocation Exercise”).

(b)  On 16 July 2018, P1 and the Defendant entered into a SOW to relocate the Defendant’s data centre (which contained the data of both the Plaintiffs and the KVB Group) to a data centre in Singapore.

(c)  The first stage of the Relocation Exercise was completed at around the end of January 2019. Most of the storage devices were moved from Hong Kong to Singapore.

(ii)  The CRM Revamp Project

(a)  The Plaintiffs used a customer relationship management system (“CRM System”) as their internal platform to keep and maintain clients’ records, including basic information relating to trading activities which were automatically imported from the Trading System.

(b)  In 2018, P1 and the Defendant agreed to revamp the CRM System (“CRM Revamp Project”).

(c)  On 7 August 2018, P1 and the Defendant entered into a SOW for phase 1 of the CRM Revamp Project.

(d)  On 28 February 2019, P1 and the Defendant entered into a SOW for phase 2 of the CRM Revamp Project.

(e)  According to both SOWs, the Plaintiffs were required to provide the server hardware. P1, however, decided not to purchase new hardware but chose to re-use their then existing servers for the revamped CRM System. This, according to the Defendant, necessitated the need to delete the data in the old CRM System to free up resources on the existing servers for the new CRM System. A full back-up was to be conducted for all data on the old CRM System before clearing the old CRM System. This was not denied by the Plaintiffs.

66.  As mentioned above, in early 2019, the Segregation Exercise was re-initiated by P1. The Segregation Exercise was not the subject of any SOW. It was agreed by Jimmy Lai (“Lai”), the Head of IT and Operations of P1 since 23 July 2019 and a witness for the Plaintiffs, in cross-examination that it was the duty of P1, not the Defendant, to carry out the Segregation Exercise. The exercise was led by one Joanne Chiu, the Director of Global Projects and Products of P2, who was also responsible for overseeing the Plaintiffs’ IT department and reviewing any signing off of any project related documents, such as SOWs, prepared by the project manager of the IT department of P2. When she resigned in May 2019, she was replaced by one Tony Yang. It is not disputed that employees of P1 were asked to classify, segregate and move their own data to P1’s KVBFG Domain as part of the Segregation Exercise. The Defendant took no part in this.

67.  Another matter which troubled the Plaintiffs considerably was the policy of the financial regulatory authorities in the Mainland. Since 1994, the provision of forex margin trading services to Mainland domestic clients by financial entities and the use of such forex margin trading services by Mainland domestic clients without approval from the Mainland financial regulatory authorities, primarily the State Administration of Foreign Exchange (“SAFE”) was illegal.

68.  According to Liu, whose evidence in this respect was not challenged, overseas institutions, however, considered that they were not covered by the prohibitory rule if they provided the abovementioned services via internet and/or online platforms.

69.  The situation began to change in 2017, when the National Internet Finance Associations of China (“NIFA”) published an article cautioning against online forex trading without the necessary approval.

70.  In late 2018, the Mainland authorities began to take action to crack down on the provision of forex trading services in violation of their regulations.

71.  In May 2019, SAFE issued an official circular to declare that no institution or agency had approval for providing the abovementioned services in the Mainland and to make clear its stance against illegal online forex trading platforms.

72.  At about the same time, the relevant regulatory authorities outside the Mainland took swift action to update their licencees about the Mainland authorities’ enforcement against illegal online forex margin trading platforms. Such regulatory authorities included the SFC, ASIC and FMA.

73.  As a consequence, there followed a fallout between the original management in P1 under the leadership of Liu and the majority shareholder Citic.

74.  The sudden change in the enforcement policy on the forex margin trading services had a great effect on the Plaintiffs because 95% of their clients were actual or potential Mainland domestic clients.

75.  Concerns over the need for compliance were first raised by one Stephen McCoy, a director of P1, at a board meeting on 18 March 2019. Proposals were then made to identify and disengage actual or potential Chinese clients who resided in the Mainland (“Disengagement Exercise”). The first option was for closing all their accounts within one month. The second option was to adopt a more gradual process to be carried out over a period of 9 to 12 months. It was eventually decided that the second option was to be adopted.

76.  Citic was extremely reluctant to proceed with the Disengagement Exercise and expressed grave doubt as to whether the Plaintiffs were covered by the prohibitory rule on the basis that they were not conducting their forex margin trading business within the Mainland.

77.  On 30 April 2019, P1’s board received a legal opinion on Mainland law which suggested that P1 should stop doing business with Mainland residents. Citic threatened to sue P1 to protect its interest if customers were lost due to the Disengagement Exercise. Citic instructed two firms of solicitors, Linklaters and Ashurst, to act for it.

78.  On 15 May 2019, in view of the dispute with Citic, P1’s board resolved (i) to request Citic to provide a further legal opinion on Mainland law and an indemnity to P1’s directors in relation to the Disengagement Exercise and (ii) failing the above, P1 would publish an announcement to declare the commencement of the Disengagement Exercise.

79.  On 22 May 2019, Citic responded and said that it found it difficult to obtain a further legal opinion on Mainland law and refused to provide an indemnity as requested. In the end, Citic never provided any legal opinion on Mainland law in support of its contention that the Disengagement Exercise was not necessary.

80.  On 31 May 2019, P1 made an announcement that, as advised by its legal advisers on Mainland law, a detailed survey would be conducted to identify any client who might possibly be classified as a Mainland domestic client and to disengage with such client as soon as possible.

81.  Shortly after that, there was a major change in P1’s board at P1’s Annual General Meeting held on 27 June 2019. Of the eleven directors who remained or were appointed at that meeting, seven of them were nominated by Citic. One Yuan Feng (“Yuan”) who was nominated by Citic was appointed as an executive director and the Deputy Chief Executive Officer. Li Jiong, a nominee of Citic and who was already on the board, was appointed as Chairman of the board. Three independent non-executive directors retired and did not offer themselves for re-election. They were replaced by four Citic-nominated directors.

82.  In the meantime, P1’s board received an SFC circular of June 2019 and a FMA letter of July 2019 which made the regulatory position clear.

83.  At the board meeting of P1 held on 23 July 2019, all the directors agreed on the need to carry out the Disengagement Exercise. This would result in a big drop in the Plaintiffs’ business and their income and profit. At the same time, Li Jiong proposed that Citic would second four middle level staff to P1 with immediate effect.

84.  On 28 July 2019, Yuan issued a notice to convene an urgent board meeting of P1 on the following day at which he proposed to revoke, invalidate and nullify the previously issued announcement about the Disengagement Exercise and to launch an investigation against Liu on the basis that there were reasons to suspect that Liu had not performed his fiduciary duties satisfactorily as Chief Executive. Liu was not given any details about his alleged misdeed.

85.  On the same day, Liu resigned from all his positions in the Plaintiff companies.

86.  Despite the above, in the end, the Plaintiffs did complete the Disengagement Exercise.

The Alleged Breach of Ps’ Implied Terms

87.  After Liu’s resignation from his office in the Plaintiffs’ Group on 28 July 2019, P1 requested the Defendant to grant access to Ps’ Data as described below.

88.  On 31 July 2019, P1’s then solicitors, Herbert Smith Freehills, requested access to the Defendants’ servers and a review of P’s Data as soon as possible for the purpose of investigation into the Plaintiffs’ Group. It is alleged that the Defendant’s Chief Information Officer, one Ricky Tsang, had agreed.

89.  Subsequently, the then solicitors for the Defendant, Chiu & Partners, replied and refused to grant access to P1 as requested.

90.  It is admitted by P1 that it had access to live data, i.e., data or information which would be current on the Defendant’s servers. What the Plaintiffs want are historical data which are not present on the Defendant’s servers (whether because such data had been moved accidently or intentionally, maliciously or otherwise) and which were kept in the back-up tapes maintained by the Defendant. Access to such historical data was refused by the Defendant.

91.  Such historical data would consist of CRM data consisting of clients’ information, profile/account of certain employees, email data, historical tracking data, finance data and missing document files.

92.  The Plaintiffs further allege that the Defendant was in breach of Ps’ Implied Terms by failing to keep back-up tapes and maintaining them for 7 years.

93.  In addition, the Plaintiffs allege that the motive for the Defendant’s refusal to cooperate with the Plaintiffs was to hide information from the Plaintiffs which had been informed by certain unidentified whistleblowers to the effect that Liu had been diverting customers and business belonging to the Plaintiffs.

The Plaintiffs’ Grounds for the Implication of Ps’ Implied Terms

94.  As has been reiterated by counsel for the Plaintiffs, Mr Lung, in the course of the hearing, the Plaintiffs do not allege that there has been breach by the Defendant of any of the express terms in the 2018 Agreement or in any of the SOWs.

95.  The main plank on which the Plaintiffs base their argument that P’s Implied Terms should be implied into the 2018 Agreement is the matrix of facts at the time of the signing of the 2018 Agreement. (See Section E.2 of the Plaintiffs’ Closing Submissions).

96.  The Plaintiffs’ argument based on the matrix of facts can be summarized as follows: -

(i)  First, the historically intertwined relationship between the Defendant and the Plaintiffs’ Group has the effect that the agreement for the provision of IT services by the Defendant to the Plaintiffs’ Group would not be expressed in the manner typical of arms’ length commercial parties. Liu was the executive director of KVB Holdings which was the sole shareholder of the Defendant and Liu also held various high ranking positions in P1, P2, P3 and P4.

(ii)  The 2018 Agreement was basically modelled on the 2014 Agreement and the 2016 Agreement but with amendments and additions. Despite the fact that the Plaintiffs make it clear that they are not submitting that the 2014 Agreement and the 2016 Agreement form part of the 2018 Agreement or constitute collateral warranties, they rely on the fact that the 2018 Agreement is basically a renewal agreement and that the terms of all three agreements are substantially similar.

(iii)  Secondly, the Defendant had full knowledge of the business nature of the Plaintiffs’ Group, including the licensed subsidiaries, and the fact that they would be subject to regulatory record-keeping requirements.

(iv)  Thirdly, the internal policies of the KVB Group (as the Plaintiffs’ Group was once called and which included both the Plaintiffs’ Group and the Defendant) which had existed prior to the 2018 Agreement provided that (i) the daily, weekly and monthly back-up would be carried out with monthly back-ups being kept for 7 years and (ii) for the right of each company to inspect files stored on its computer resources to ensure compliance with regulatory and legislative requirements. On the other hand, the Plaintiffs admit that such internal policies of the KVB Group do not have contractual force.

(v)  Fourthly (wrongly referred as “Fifth” in paragraph 139 of the Plaintiffs’ Closing Submissions), at the time of the entry into the 2018 Agreement, the parties understood that data was securely and routinely backed up so that they “can be restored in the event of deletion, loss, corruption, damage or made unavailable due to unforeseen circumstances” (see the Back Up Policy V. 092 dated 20 January 2016, being an internal policy of the KVB Group).

(vi)  Fifthly (wrongly referred to as “Sixth”) in paragraph 144 of the Plaintiffs’ Closing Submissions), prior to entry into the 2018 Agreement, the Defendant had all along been keeping back-up tapes of “P’s Data” and retaining the same for 7 years (whether it was during the currency of the 2014 Agreement or the 2016 Agreement).

(vii)  In actual fact, the Plaintiffs’ Group only had a small IT team and largely relied on the Defendant for IT services (whether as the Plaintiffs’ Group’s de facto IT department or the IT department for the entire KVB Group).

97.  The Plaintiffs further rely on the evidence of their expert, Mr Daniel Angelucci, on the practice in the trade regarding IT service agreements, although there is hardly any reference to this in the Plaintiffs’ Closing Submissions.

The Defendant’s Counter-Arguments

98.  The Defendant denies the existence of any implied terms in the 2018 Agreement. In any event, the Defendant denies that there has been any breach by it of the 2018 Agreement with or without Ps’ Implied Terms as alleged.

99.  Regarding the allegation by the Plaintiffs that terms should be implied into the 2018 Agreement, the Defendant’s argument can be summarized as follows: -

(i)  The 2018 Agreement is a detailed commercial contract arrived at after negotiations and with both sides being advised by their respective lawyers. Furthermore, when the draft 2018 Agreement was considered by the board of P1, Liu and the other KVB-related directors abstained from voting. It had also been vetted by independent consultants who were satisfied that it was a fair agreement between the parties. Hence, the 2018 Agreement was very much an arms-length agreement between the parties thereto.

(ii)  Regarding the overlapping of roles on the part of Liu in both the KVB Group and the Plaintiffs’ Group, it has not been pleaded that Liu ever represented the Defendant.

(iii)  Regarding the alleged understanding on the part of the parties to the 2018 Agreement based on the 2016 Agreement and the 2014 Agreement, Clause 6.1 of the 2018 Agreement (the entire agreement clause) (see paragraph 37 above) has the effect of preventing the parties from relying on those previous agreements for the purpose of drawing any understanding based on them.

(iv)  The same goes for the alleged full knowledge on the part of the Defendant of the nature of the business of the Plaintiffs’ Group.

(v)  Regarding the Plaintiffs’ reliance on the internal policies of the KVB Group about the keeping of back-ups, the Defendant says that such internal policies were not peculiar to the Defendant but were applicable to all the companies within the KVB Group, including both FG and non-FG companies. In any event, the Plaintiffs have admitted that such internal policies have no contractual force.

(vi)  Regarding the Plaintiffs’ allegation that at the time of the entry into the 2018 Agreement, the Defendant had in fact all along been keeping back-up tapes and retaining the same for 7 years, the Defendant denies that that was so. In any event, before and after the entry into the 2018 Agreement and until July 2019, the Plaintiffs had never asked for or been supplied with any back-up tapes.

(vii)  Regarding the issue about the size of the IT team within the Plaintiffs’ Group, the Defendant has pointed out that the Plaintiffs had a team of 7 or 8 persons, including those stationed outside Hong Kong. Such IT team should be responsible for data management within the Plaintiffs’ Group, including the task of keeping back-ups.

(viii)  The Defendant submits that the duty was solely on the Plaintiffs’ Group or the licensed subsidiaries within it to comply with the regulatory requirement and that duty could not be passed on to the Defendant.

(ix)  In any event, the Plaintiffs have not satisfied the 5 Conditions for importing Ps’ Implied Terms into the 2018 Agreement, especially the requirement of necessity and obviousness.

(x)  Furthermore, the expert evidence relied on by the Plaintiffs does not assist the Plaintiffs’ case. On the other hand, the expert evidence adduced by the Defendant should be preferred.

Discussion

100.  First of all, there is no dispute that the 2018 Agreement had been drafted with legal advisers on both sides, that the draft had been vetted and approved by the board of P1 (with interested directors abstaining from voting) and by independent consultants (because P1 was listed on the HKSE). In such circumstances and on the legal authorities, it is seriously doubted whether there can still be room for implying other terms into the agreement.

101.  Although the Plaintiffs have made the point that the 2018 Agreement was substantially based or modelled on the 2016 Agreement and the 2014 Agreement, effect must be given to the entire-agreement clauses in the 2018 Agreement. First of all, there is Clause 6.1 (see paragraph 37 above) which refers to both the “agreement” as well as the “understanding” between the parties. Furthermore, there is also Clause 2.2 (see paragraph 33 above) which specifically referred to the 2016 Agreement and provided that it should be terminated immediately “with no further force or effect”. Despite the fact that the Plaintiffs have produced some authority to the effect that an entire-agreement clause is not absolute in preventing the previous dealings between the parties being relied on for implying terms into their agreement, such entire-agreement clause must have the effect of considerably cutting down the scope for such reliance on previous dealings. At the end of the day, it is still a question of construction of the entire agreement.

102.  Another point to be borne in mind is that there is a difference between the 2014 Agreement and the 2016 Agreement on the one hand and the 2018 Agreement on the other hand in that, by the time that the 2018 Agreement was entered into in December 2018, the majority shareholder of P1 had been changed from the KVB Group to Citic which took over a major stake in P1 in May 2018.

103.  Looking at the relevant specific provisions in the main body of the 2018 Agreement, the following are noted: -

(i)  Under Clause 1, the “Services” to be provided by the Defendant are for “Software development”, “Software maintenance”, “IT infrastructure project management” and “IT infrastructure maintenance”. They do not include “data management services” which is not mentioned at all in the 2018 Agreement or the Schedules thereto.

(ii)  Furthermore, Clause 3.4 (see paragraph 34 above) specifically provides that in the event that any of the Plaintiffs were to engage the Defendant in providing “other information technology services which are not covered in the Services”, they would need to enter into “separate agreement(s) subject to the requirements under the Listing rules”. This provision clearly has the effect of obliging the Plaintiffs or any of them to enter into a separate agreement with the Defendant if the Defendant were to be asked to provide “IT management services” which did not come under the definition of “Services” as defined in the agreement.

(iii)  It is to be noted also that under Clause 3.7 (see paragraph 34 above), there is specific reference to the obligations of the Defendant to comply with the Listing Rules, but only in relation to “continuing connected transactions”. Clause 3.9 is even more specific. By it, the Defendant (by itself and its associates) undertakes to the Plaintiffs to use their best endeavours to assist the Plaintiffs in complying with the relevant requirements under the Listing Rules, in particular, Chapter 14A of the Listing Rules “in relation to connected transactions”. There is no reference to any duty to comply with or to assist the Plaintiffs in their compliance with the Listing Rules regarding aspects other than “connected transactions”. There is certainly nothing mentioned about the obligation for the keeping of records. If the parties had specifically adverted to and made provision regarding one aspect of the Listing Rules, the inference can be drawn that they did not intend to make any provision regarding other aspects of the Listing Rules.

104.  Regarding the Schedules to the 2018 Agreement, namely, Schedules A-1, A-2, B-1 and B-2, they set out elaborately the details of the services to be provided by the Defendant. In particular, Schedule B-2, which relates to “IT INFRASTRUCTURE MAINTENANCE SERVICES”, is more indicative. Under the heading “SERVICES INCLUDED”, item 3 reads as follows: -

“3. IT System and Web Maintenance Services : Covering all KVB FG IT System Hosting, Web Infrastructure Hosting and related Information Security Support. Web Development and Content Maintenance are out of scope.”

[emphasis added]

Furthermore, that Schedule also provides a penalty. It provides that: -

“Banclogix guarantees that the Managed Services Availability of managed servers will be available 99.97% of the time in a given month during FX trading hours, excluding scheduled maintenance”.

There then follows details for the calculation of the penalty. Thus, there is a specific provision for imposing a penalty in the event of the Defendant failing to provide information during trading hours. This is very different from an obligation on the Defendant for system recovery back-up/archival back-up on demand by the Plaintiffs over many years.

105.  The point about item 3 in Schedule B-2 which I have referred to in paragraph 104 above has also bean dealt with by Mr Tony Sykes (the expert for the Defendant) in paragraphs 2.1.36 and 2.1.37 of the Joint Expert Report of Mr Daniel Angelucci (the Plaintiffs’ expert) and Mr Tony Sykes. I agree with the opinion of Mr Sykes. I further prefer the opinion of Mr Sykes to that of Mr Angelucci when Mr Sykes, in contrast with Mr Angelucci, says that data management services are not necessary or required to be provided by an IT service provider in order for it to properly perform IT service agreements as a general proposition. This is even more so in this case when considered against the background of all the express provisions in the 2018 Agreement, including the Schedules thereto. In view of the fact that all the said provisions were obviously drafted with great care and with such fine details, I cannot imagine that data management service would not even be mentioned in the 2018 Agreement or the Schedules thereto if the parties had really intended that such a service should be provided by the Defendant.

106.  Furthermore, each of the Schedules also set out in detail the charges by the Defendant for the services provided thereunder. There is no reference to any charge for data management service or any of the services contemplated in Ps’ Implied Terms. The experts, M. Angelucci and Mr Sykes, are agreed that data management services do cost money which is not insubstantial. Hence, it is highly unlikely that such data management service to be provided by the Defendant as alleged by the Plaintiffs would not be the subject of any fee charged by the Defendant which would be the position if Ps’ Implied Terms were to be implied into the 2018 Agreement.

107.  There has been produced in evidence copies of 20 Statements of Work dated between February 2015 and February 2019. Each of them consists of many pages with very detailed terms. Each would also be signed by P1 and the Defendant. Take, for example, the Statement of Work dated 28 February 2019 relating to the CRM Revamp Phase 2. It first states that the Statement of Work is entered into between the Defendant and P1 in accordance with the 2018 Agreement (which is described as the “Master Agreement”). It consists of 22 pages with very detailed provisions about the scope of work and are signed by the parties at the end. There is therefore no doubt that the 2018 Agreement is only the master agreement or umbrella agreement and that each Statement of Work is a separate contract in itself dealing with an individual project.

108.  Take another example. Under the Statement of Work dated 5 February 2015, the services to be provided by the Defendant were Web Maintenance Services, IT Services and SAP Services. In relation to IT Services, the services to be included were: - (i) IT Helpdesk service; (ii) Technical Support; (iii) IT project management; (iv) IT solution consultancy; (v) Vendor management; (vi) IT operation management; (vii) IT security management. In relation to each of the above services, there are fine details set out.

109.  In the abovementioned circumstances, it is difficult to see how other terms can be implied into the 2018 Agreement which is only the master agreement.

110.  In my view, the biggest hurdle for the Plaintiffs is really to satisfy the condition of necessity. On the authorities cited above, a term can be implied only if it is necessary to make the contract work; a term can only be implied if, without it, the contract would lack commercial or practical coherence. The concept of necessity must not be watered down. As I see it, the 2018 Agreement can work perfectly well without Ps’ Implied Terms. If, as submitted by the Plaintiffs, the 2014 Agreement and the 2016 Agreement are to be taken into account, then all the three agreements had worked perfectly well from 2014 until July 2019 when P1 started making the demands in question against the Defendant. If the Plaintiffs needed data management service, all they had to do was to instruct their IT team or an outside service provider to provide it.

111.  Furthermore, Ps’ Implied Terms as pleaded being so elaborate, I also do not think that they can satisfy the condition of obviousness. In any event, it seems that the Plaintiffs are no longer saying that they have satisfied the condition of obviousness.

112.  I should also add that in relation to the witnesses called by each side, namely, Lai, Yuan and Chan Mo On on the Plaintiffs’ side and Stephon Ye, Yang Wenhuan and Liu on the Defendant’s side, there have been cross-attacks regarding the veracity of such witnesses. One point which has emerged from the evidence on both sides is that some data had been deleted from the various systems by staff from the Plaintiffs’ Group in the course of the various exercises referred to above, including the Relocation Exercise, the CRM Revamp Exercise and the Segregation Exercise. I am of the view that the evidence by these witnesses are not of assistance in my consideration of the issue as to whether Ps’ Implied Terms should be implied into the 2018 Agreement. Even if the Defendant had in fact been keeping back-up tapes for 7 years or for whatever period, it does not mean that they would be duty-bound to supply the same to the Plaintiffs as a matter of construction of the 2018 Agreement. Furthermore, whether the IT team of the Plaintiffs’ Group was big or small, it does not affect the question of whether without Ps’ Implied Terms the 2018 Agreement would still work.

113.  Furthermore, regarding the allegation of misconduct on the part of Liu, since he is only a witness and not a party to these proceedings, it is inappropriate for me to make any finding on this issue of the alleged misconduct on the part of Liu and those working under him, especially in view of the fact that Yuan had said in the witness-box that he would try to gather more evidence against Liu and might possibly take legal action against him in future. Any finding by me on this issue would inevitably have an impact on any possible further legal action taken by the Plaintiffs against Liu.

114.  For all the abovementioned reasons, I hold that the Plaintiffs have failed to prove their case on Ps’ Implied Terms. I will dismiss the Plaintiffs’ claim in HCA 1416.

D’s Implied Terms

115.  Regarding D’s Implied Terms, the parties had called experts to give evidence on New Zealand law. The Defendant called Ms Frances Mary Joychild KC with a view to proving that complying with Ps’ Implied Terms would involve the Defendant in contravening the privacy law in New Zealand. The Plaintiffs called Mr Marc Corlett KC with a view to proving the contrary.

116.  It is to be noted that no expert evidence has been adduced on the law in Australia or Hong Kong.

117.  As I see it, the Plaintiffs’ Group’s business involve investment activities in New Zealand, Australia and Hong Kong, although the majority of them are in New Zealand but not all. In such circumstances, even if the Defendant is successful in proving its case on New Zealand law so as to refute the application of Ps’ Implied Terms (assuming that they were proved), the same would still not have the effect of refuting Ps’ Implied Terms (assuming that they were proved) regarding their applicability to the Plaintiffs’ activities in Australia and Hong Kong.

118.  In the abovementioned circumstances and in view of the fact that I have found that the Plaintiffs’ have failed to prove their case on Ps’ Implied Terms, I do not think that it is necessary for me to rule on the issue of D’s Implied Terms.

The Defendant’s Counterclaim in HCA 1416

119.  In the Defendant’s Counterclaim, it seeks various declarations to the effect that the Defendant has proved that D’s Implied Terms should be implied into the 2018 Agreement.

120.  In view of my findings above, the declarations sought have no consequence and are unnecessary. I will make no order on the Defendant’s Counterclaim.

The Defendant’s Claim in Action 452

The Defendant’s Case

121.  In HCA 452, the Defendant claims against P1 the following main relief: -

(i)  A declaration to the effect that P1 had wrongfully repudiated the 2018 Agreement, that the Defendant had rightly accepted the repudiation by P1 and that the Defendant had been discharged from further performance of the 2018 Agreement as from 6 April 2020;

(ii)  Termination Payment in the sum of $2,500,000 (“the Termination Fee”);

(iii)  Outstanding Software Maintenance Fee (“the Software Fee”) in the sum of $448,560;

(iv)  Outstanding IT Infrastructure Maintenance Fee (“the IT Fee”) in the sum of $1,500,000;

(v)  Further or alternatively, damages to be assessed.

122.  Regarding the Termination Fee, the Defendant alleges that on 19 March 2020 P1, wrongfully and in breach of the 2018 Agreement, gave notice of termination of the 2018 Agreement with immediate effect and indicated that it would not pay the IT Fee which had been outstanding or the Termination Fee; on 6 April 2020, the Defendant through its solicitors, Chiu & Partners, accepted the repudiation of the 2018 Agreement by P1.

123.  In claiming the Termination Fee, the Defendant relies on Clause 4.1(b) of the 2018 Agreement (see paragraph 35 above).

124.  Regarding the Software Fee, the Defendant alleges that it had provided software maintenance services pursuant to a Statement of Work entitled “Project Scope SAP Enhancement Project” entered into between the Defendant and the Plaintiff on 26 July 2018 which was executed pursuant to the 2016 Agreement.

125.  The Defendant further alleges that on 5 November 2019, Lai on behalf of P1 indicated a desire on the part of P1 to renew its SAP ERP System and that following a meeting between Lai and Stephon Ye on 5 December 2019, P1 confirmed that it would continue to subscribe for the SAP ERP System provided by the Defendant for the calendar year of 2020.

126.  On 31 December 2019, the Defendant duly issued an invoice to P1 for the Software Fee.

127.  According to the Defendants’ IT access records, P1’s staff continued logging into and using the SAP System throughout the month of January 2020. P1 is therefore estopped from denying that there was an agreement reached between Lai and Stephon Ye as referred to in paragraph 125 above.

128.  Despite repeated requests and demands on various dates between January and March 2020, P1 has failed to settle the said invoice dated 31 December 2019.

129.  In the above circumstances, the Defendant alleges that it is entitled under Schedule A-2 of the 2018 Agreement to charge the Software Fee for the calendar year of 2020 as computed on the basis of 15% of the SAP ERP System project cost of $2,990,400; i.e., $448,560.

130.  Regarding the IT Fee, the Defendant alleges that, under Schedule B- 2 to the 2018 Agreement, the fixed annual fee chargeable by it for its IT infrastructure maintenance services for the year 2020 is $6,000,000 payable on a quarterly basis. P1 had paid the fee for the first quarter of 2020. On 5 March 2020, the Defendant issued an invoice for the IT Fee for the second quarter between 1 April 2020 and 30 June 2020 in the sum of $1,500,000.

131.  As referred to above, on 19 March 2020, P1 gave notice to the Defendant that the 2018 Agreement would be terminated and indicated that it would not pay the IT Fee and the Termination Fee.

P1’s Case

132.  P1 first denies that it had wrongfully repudiated the 2018 Agreement. On the contrary, it claims that its termination of the 2018 Agreement is rightful because the Defendant had committed serious breaches of the 2018 Agreement which contained Ps’ Implied Terms.

133.  Regarding the Defendant’s claim for the Termination Fee, P1 says, first of all, that the Defendant should not be entitled to the same on the basis referred to above because the Defendant as opposed to P1 is the party in breach.

134.  Secondly, in the event that the court were to hold that P1 was in breach of the 2018 Agreement and that the Defendant was entitled to accept the alleged wrongful repudiation of the 2018 Agreement by P1, P1 says that the Defendant would still not be entitled to claim the Termination Fee because the alleged repudiation of the 2018 Agreement by P1 and the acceptance of such repudiation by the Defendant do not come within the ambit of Clause 4.1 of the 2018 Agreement.

135.  Regarding the Defendant’s claim for the Software Fee, the Plaintiff says that there had been no agreement reached between Lai and Stephon Ye as alleged, that the accidental logging into and the use of the SAP System by some of P1’s staff would not create any estoppel against P1, and further that, in any case, the Defendant had not pleaded any reliance on or any prejudice caused by such logging in or use. Hence, the Defendant is not entitled to claim the Software Fee. P1 further argues that, in any event, the SAP System was provided by KVB Holdings under the 2^nd 2018 Agreement and not by the Defendant.

136.  P1 further argues that on the true construction of Schedule A-2, the Software Fee can only be charged on a pro-rata basis proportional to the actual number of months during which the Software was used by P1.

137.  Regarding the Defendant’s claim for the IT Fee, P1 admits that it had paid the fee for the first quarter of 2020. Since P1 had given notice to the Defendant to terminate the 2018 Agreement on 19 March 2020, the Defendant is not entitled to charge the IT Fee which is for the second quarter from 1 April 2020 to 30 June 2020.

The Defendant’s Response

138.  Regarding its claim for the Termination Fee, the Defendant says that it is clearly entitled under Clause 4.1 of the 2018 Agreement.

139.  Regarding its claim for the Software Fee, the Defendant relies on its IT access records which tracked P1’s use of the SAP System through its employees. It further refers to the fact that the Plaintiffs’ staff also requested urgent IT Support from the Defendant in relation to P1’s use of the SAP System.

140.  Furthermore, it is not right to say that the SAP System was provided by KVB Holdings under the 2^nd 2018 Agreement. Whilst KVB Holdings owned the licence for the SAP System and had entered into the 2^nd 2018 Agreement to permit use of it by the Plaintiffs, it was the Defendant who was contracted by P1 to configure and integrate the SAP System to suit the Plaintiffs’ needs under the 2018 Agreement. The Software Fee relates to the services by the Defendant which was agreed to be charged under the SAP Enhancement Project SOW which was issued under the 2018 Agreement.

141.  The Defendant disputes the construction of Schedule A-2 as argued by P1.

142.  Regarding the question of whether P1 had agreed with KVB Holdings to renew P1’s subscription for the SAP System, Lai in cross- examination did agree that the Software Fee was pursuant to the terms of the 2018 Agreement. There was also no expiry stipulated for the SAP Enhancement Project Statement of Work. This is further supported by the 9-page IT access record showing the Plaintiffs’ repeated access to the system in January 2020.

Discussion

143.  I deal first with the Termination Fee.

144.  In view of my findings above to the effect that the Plaintiffs have failed to prove that Ps’ Implied Terms should be implied into the 2018 Agreement and that the Defendant had not committed any breach of the 2018 Agreement, the notice issued by the Plaintiffs on 19 March 2020 to the effect that the 2018 Agreement was terminated with immediate effect and that they would not settle the IT Fee, I find that the Plaintiffs had wrongfully repudiated the 2018 Agreement and that the Defendant was entitled to accept such repudiation.

145.  The question is what remedy the Defendant is entitled to as a result of the said repudiation.

146.  In my judgment, the wording of Clause 4.1 of the 2018 Agreement is quite clear. I do not agree with the Plaintiffs’ submission that Clause 4.1 only covers the situation where either party gives 3 months’ written notice of termination. The opening words of Clause 4.1 merely set out the terms governing the situation when a Terminating Party would not be in breach of contract if it gives 3 months’ notice to terminate. Sub-paragraphs (a), (b) and (c) clearly sets out what the Terminated Party is entitled to receive as compensation depending on during which period the agreement was terminated, irrespective of whether the specified 3-month notice had been given or whether some shorter period notice had been given.

147.  Furthermore, I do not agree with the Plaintiffs’ submission that Clause 4.1 is a penalty provision. It is trite that the use of the term “penalty” is not conclusive. Whether a provision amounts to a penalty provision depends on the substance of the provision. Quite clearly, the last sentence in Clause 4.1 indicates that the parties did apply their minds to the question of the nature of the provision and as to whether it would constitute a penalty provision and that they were satisfied and agreed that it was not. More particularly, in relation to Clause 4.1(b), a payment amounting to 10% of the Cap Amount does not seem punitive to me. An adoption of the figure of 10% appears to be quite standard in relation to provisions such as one for forfeiture of deposit.

148.  I therefore find that the Defendant is entitled to charge the Termination Fee against the Plaintiffs.

149.  On the other hand, in view of my finding in paragraph 148 above, I do not think that the Defendant is entitled to claim any common law damages or other expenses arising from the wrongful termination of the 2018 Agreement, such as the storage and other charges incurred in Singapore, in addition to the Termination Fee. The idea of the Termination Fee is to give to the Terminated Party an amount of compensation assessed and agreed between the parties to compensate the Terminated Party for the loss which it would suffer as a result of the earlier termination of the 2018 Agreement than the expiry date of 31 December 2021.

150.  I next deal with the claim by the Defendant for the Software Fee.

151.  To begin, I deal first with the ambit and effect of the 2^nd 2018 Agreement. Under that agreement, KVB Holdings agreed to procure its subsidiaries which include the Defendant to provide the “Services” which is defined as “financial system services which include the provision of enterprise resources planning (ERP) system support”. KVB Holdings, being a holding company, would be unlikely to provide such services to the Plaintiffs. The likelihood was that it would ask its subsidiary, the Defendant, to provide such services.

152.  I have checked the 9-page IT access records produced by the Defendant. They show that 5 persons, namely, Bon Kan, Cheryl Liu, Kevin Oi, Nancy Tong and Samuel Hon, who are said to be employees of P1 did have numerous access to the system throughout the month of January 2020. This has not been denied by P1. It merely describes it as “accidental logging on and use by some of its employees”.

153.  In the abovementioned circumstances, I find on the evidence that the services to the SAP ERP System were provided by the Defendant and that P1 did utilize such services throughout the month of January 2020. Irrespective of any question of estoppel, I find that P1 should pay for such services. The question is how much it should pay.

154.  The answer lies in Schedule A-2 to the 2018 Agreement: -

(i)  The item under the heading of “SOFTWARE MAINTENANCE FEE” reads as follows: -

“Annual Software maintenance fee is calculated at 15% of each signed SOW and sequential charge request(s) for each completion of the Software for KVB FG and/or other members of the KVB FG Group. For any annual software maintenance fee after the Duration of this Agreement as defined in Clause 2.1, the parties to this Agreement will enter into a separate agreement in due course.”

[emphasis added]

(ii)  The item under the heading of “PAYMENT TERM” reads as follows: -

“The Software maintenance fee will be charged on a prepaid and calendar year basis, based on the total contract value (including any subsequent development or enhancement fees) of any completed Software and such Software will be under the maintenance of Banclogix in that calendar year. For any Software completed in-between a calendar year, it shall also be prepaid on a pro-rata basis upon each Software goes live.

Payment term for all the fees under Schedule A-2 is fourteen (14) days upon receipt of an invoice of the relevant fees for payment.

………………………………………………………………………”

[emphasis added]

155.  The way I read the provisions set out in paragraph 154 above is that the Software Fee is calculated on an annual basis and was to be prepaid on an annual fee basis. The use of the expression ‘pro-rata basis’ in the paragraph under the heading “PAYMENT TERM” was merely to cater for the situation when a new Software was created in the middle of a calendar year, in which case the maintenance service in respect of it would only be over the period of the second half of that calendar year. In such a case, the service fee would be for half of a calendar year instead of a whole calendar year. It would still have to be prepaid on the basis of half of a calendar year.

156.  I therefore agree with the Defendant that the service fee should be prepaid on the basis of a calendar year and calculated in accordance with the specified formula. Hence, I do not agree with the P1 that it should be paid on a pro-rata basis according to actual use.

157.  In the circumstances, I agree that the Defendant should be paid the Software Fee.

158.  Regarding the IT Fee, since P1 has admitted that it did pay for the first quarter of 2020, it must mean that the service fee had been incurred during the first quarter.

159.  As to whether the Defendant is entitled to charge for the second quarter of 2020, which is the subject of the invoice dated 5 March 2020, the answer depends on the relevant provisions in Schedule B-2 to the 2018 Agreement.

160.  In Schedule B-2, the item under the heading “IT INFRASTRUCTURE MAINTENANCE FEE” reads as follows: -

“A fixed annual fee will be charged and will be reviewed on yearly basis.”

The item under the heading “PAYMENT TERM” reads as follows: -

“Annual IT Infrastructure Maintenance Fee will be charged quarterly by the Company”.

161.  These provisions are to be compared with those in Schedule A-2 which are set out in paragraph 154 above. Those provisions provide for prepayment on a calendar year basis and are clear that payment for a whole calendar year were to be made at the beginning of the calendar year. The provisions in Schedule B-2 do not specify prepayment on the basis of a calendar year. I interpret them to mean that assessment of the fee is on the basis of the services to be provided within a year but that fee is to be paid in 4 instalments, one for each quarter.

162.  In the above circumstances and in view of the fact that before the beginning of the second quarter P1 had already given notice of termination of the 2018 Agreement on 19 March 2020, I hold that the Defendant is not entitled to charge for the second, or third or fourth quarter of the year. On the argument put forward by the Defendant, it should have claimed payment for the third and fourth quarters also. It has not. That is an indication that it does not think that it is entitled to make such a claim.

163.  In my judgment, the Defendant is not entitled to the IT Fee.

Answers on the Agreed List of Issues

164.  I now give my answers on the Agreed List of Issues set out in paragraph 28 above: -

Issue 1

(i)  Ps’ Implied Terms should not be implied into the 2018 Agreement.

(ii)  It is not necessary for me to rule on D’s Implied Terms.

(iii)  In view of my holding under (i) above, it is not necessary for me to deal with points a, b and c under Issue 1.

Issue 2

In view of my holding under Issue 1 above, it is not necessary for me to deal with Issue 2.

Issue 3

By giving notice to terminate the 2018 Agreement on 19 March 2020, P1 had wrongfully and in breach of contract terminated the 2018 Agreement with immediate effect. P1 had wrongfully refused to honour its payment obligations to the Defendant thereunder.

Issue 4

Under HCA 452, the Defendant is entitled to be paid the Termination Fee and the Software Fee but not the IT Fee.

The Defendant’s Undertaking to the Court

165.  As a result of the injunction proceedings instituted by the Plaintiffs after the commencement of these proceedings, the Defendant had given certain undertakings in lieu of injunction to the court when P1 and the Defendant appeared before DHCJ Maurellet SC on 9 August 2019. Those undertakings are still in force.

166.  In view of my findings above, I should order that the Defendant should be discharged from those undertakings.

167.  The parties have however by consent asked me not to have those undertakings discharged for a period of 28 days in the event that I dismiss the Plaintiffs’ claim in HCA 1416, in case any of the parties decides to take the matter further.

168.  I grant the parties’ request.

Conclusion

169.  I make the following orders: -

(i)  The Plaintiffs’ claims in HCA 1416 are dismissed.

(ii)  No order is made on the Defendant’s Counterclaim in HCA 1416.

(iii)  There will be judgment for the Defendant in HCA 452 for the following sums: -

(a)  $2,500,000;

(b)  interest on the said sum of $2,500,000 at the rate of 1% over the Best Lending Rate quoted by HSBC from time to time (“the BLR”) from 19 March 2020 until the date of judgment herein;

(c)  $448,560;

(d)  interest on the said sum of $448,560 at the rate of 1% over the BLR from 31 December 2019 until the date of judgment herein;

(iv)  I make an order nisi that the Plaintiffs shall pay to the Defendant the costs in HCA 1416 and the costs in HCA 452 on a party and party basis with a certificate for two counsel;

(v)  The undertakings given by the Defendant to the court on 9 August 2019 to remain in force for 28 days from the date of the judgment herein;

(vi)  The parties are to have liberty to apply in the working out of the Order.

170.  Last but not least, it remains for me to thank counsel on both sides for the immense assistance which they have very ably given to me in the course of the trial of this rather complicated case.