RICH PLACE INVESTMENT LTD AND ANOTHER v. ORIENTAL PATRON SECURITIES LTD AND OTHERS

HCA 537/2014

[2024] HKCFI 576

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 537 OF 2014

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J U D G M E N T

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Introduction

1.  This is the trial of the Action on liability against the 1^st Defendant, being the only active Defendant[1] left in the Action.

2.  The Plaintiffs were at all material times corporate vehicles holding assets on behalf of and controlled by the Hui family. The 2^nd Plaintiff is owned by the 1^st Plaintiff which is in turn owned by the Wing Hong Trust, a discretionary trust whose beneficiaries included members of the Hui Family. At all material times, the Plaintiffs were represented by Mr Hui Chi Yang (“Samson Hui”) and his elder brother Mr Hui Chi Yung (“CY Hui”), both of them (“Huis”) are members of the Hui family. CY Hui was at the material time a director and authorised signatory of the Plaintiffs.

3.  At the beginning of January 2014, the 1^st Plaintiff and the 2^nd Plaintiff were respectively the owners of 618,918,560 and 125,000,000 shares in China Railsmedia Corporation Limited (HKEx Stock Code: 0745) (“Railsmedia”).

4.  The 1^st Defendant is and was at all material times a company engaged in the business of securities brokerage. At all material times, Ms Ip Hung (“Vien Ip”) was the Chief Executive Officer of the 1^st Defendant. From 6 January to 30 November 2014, Mr Ho Kwai Ching Mark (“Mark Ho”) was its Chief Operating Officer.

5.  The underlying disputes concern the private placement of the Plaintiffs’ shares in Railsmedia by the 1^st Defendant on their behalf in 2014 and the subsequent sale of the placing shares by the placees prior to the expiry of the agreed lockup period of 18 months, prompted by a downturn in market conditions. The main thrust of the Plaintiffs’ complaint is that the 1^st Defendant should not have carried out the placees’ instructions to dispose of the placing shares in its custody and/or releasing their placing shares from its custody.

Material Facts

6.  What follows are either common grounds between the parties or not seriously in dispute.

7.  In late 2013, the Plaintiffs and the 1^st Defendant commenced discussions through inter alia Samson Hui and Vien Ip about a potential private placement of a portion of the Plaintiffs’ shareholding in Railsmedia. From about 30 December 2013, there were a number of email exchanges between the Plaintiffs and the 1^st Defendant on the draft placing agreement to be signed by them and the draft undertaking to be signed by the placees and the 1^st Defendant up to the evening of 6 January 2014.

8.  On 6 January 2014 during office hours in the afternoon, a meeting was held at the 1^st Defendant’s office between the Huis and Mr Cheung Siu Leong (“Cheung”), an associate of the Huis, for the Plaintiffs, and Vien Ip for the 1^st Defendant (“Jan 6 Meeting”). At that Meeting, CY Hui executed the account opening documents on behalf of the Plaintiffs with the 1^st Defendant.

9.  The parties are in dispute as to the purpose of the Jan 6 Meeting and also whether a collateral agreement was reached between the Huis on behalf of the Plaintiffs and Vien Ip on behalf of the 1^st Defendant.

10.  It is the Plaintiffs’ pleaded case that an oral agreement (“Collateral Agreement”) was reached between the Plaintiffs via the Huis and the 1^st Defendant via Vien Ip under which it was agreed that:

a.  the placees would be subject to the Lockup (as defined below);

b.  the Placing Shares would be placed in the custody of the 1^st Defendant during the Lockup Period (as defined below); and

c.  the 1^st Defendant would ensure that the Placees Custody Undertaking (as defined below) would be complied with by the placees after the Placing Shares were placed in its custody.

11.  The 1^st Defendant denies the existence of the Collateral Agreement. It is the 1^st Defendant’s case that the Jan 6 Meeting was solely for the purpose of introducing CY Hui to the 1^st Defendant and for him to execute the account opening documents of the 1^st Defendant on behalf of the Plaintiffs.

12.  On 7 January 2014, the Plaintiffs as vendors and the 1^st Defendant as agent entered into a written agreement (“Placing Agreement”). Under the Placing Agreement, the 1^st Defendant was appointed as the Plaintiffs’ agent to procure placees for 565,000,000 and 125,000,000 shares in the Railsmedia (“Placing Shares”) at a placing price of HK$0.35 per share upon the terms and conditions set out therein. In return, the Plaintiffs would pay the 1^st Defendant a flat fee of HK$3.5 million.

13.  For the present purpose, one of the most important terms of the Placing Agreement was as follows:

“1. THE PLACING

(A) The Vendors hereby appoint the Agent as its agent to procure placees for the Placing Shares and the Agent hereby agrees to such appointment.

(B) Upon execution of this Agreement, the Vendors agree to sell all or part of the Placing Shares to the placees subject to the final approval of the place list by the Vendors.

(C) The Agent agrees to procure placees at HK$0.35 per Placing Share for long term investment purpose, subject to the following conditions:

(I) The placees shall execute a written undertaking from the date of the undertaking for a period of 18 months[2] thereof, that he will not … sell…or otherwise dispose of any of the Placing Shares (“Lockup”), except (i) with the prior written consent of the Vendors to release the Lockup or (ii) the share price of [Railsmedia] reported by the [Hong Kong Stock Exchange] closed below HK$0.60 per share… for three consecutive trading days, then the placee shall be entitled to dispose the Placing Shares;

(II) The placees procured by the Agent undertakes to put in custody his Placing Shares at the Agent’s securities firm and will not transfer to any other location within the Lockup Period unless otherwise with the prior written consent of the Vendors and the Agent if the placee is procured by the Agent;

(III) Under no circumstance should the placee violate the Lockup. In the extremely event that the placee default in his undertaking in disposing of his Placing Shares before the Lockup period, the Vendors shall be entitled to all of the profits made from the shares disposed by that placee. In addition, the placee shall pay a penalty being 30% of his initial purchase price of the Placing Shares, and shall keep the Agent and the Vendors indemnified for all costs and expenses incurred…” (emphasis added)

14.  Clause 1(C)(II) is defined in the Re-Amended Statement of Claim as “1^st Defendant Custody Undertaking”. This is misleading since the undertaking was not given by the 1^st Defendant as such. Rather, it was to be given by the placees. It would be more accurate to refer Clause 1(C)(II) as “Placees Custody Undertaking” and the same will be used in this Judgment.

15.  Pursuant to the Placing Agreement, the Placing Shares were transferred to the 1^st Defendant on 7 January 2014. Thereafter, the 1^st Plaintiff still retained 53,918,560 Railsmedia shares.

16.  On or after 7 January 2014, the 1^st Defendant opened securities accounts for inter alia the following placees, each of whom entered into written client agreements with the 1^st Defendant (“Client Agreements”):

a.  The 2^nd Defendant (“D2”).

b.  The 3^rd Defendant (“D3”).

c.  The 4^th Defendant (“D4”).

d.  The 5^th Defendant (“D5”).

e.  The 6^th Defendant (“D6”).

f.  The 7^th Defendant (“D7”).

17.  On or after 7 January 2014, the 1^st Defendant placed 248 million Placing Shares at HK$0.35 per share into the securities accounts opened by the following placees (“Placees”) with the 1^st Defendant [3]:

a.  30,000,000 Placing Shares to D2;

b.  30,000,000 Placing Shares to D3;

c.  13,000,000 Placing Shares to D4;

d.  10,000,000 Placing Shares to D5;

e.  5,000,000 Placing Shares to D6;

f.  20,000,000 Placing Shares to D7;

g.  140,000,000 Placing Shares to the 8^th Defendant (“D8”).

18.  HK$0.35 per share represented a substantial discount from the closing price of the Railsmedia shares at HK$2.10 on 7 January 2014.

19.  Also on 7 January 2014, the 1^st Defendant as Agent and D2 to D7[4] entered into written agreements (“Written Undertakings”).

20.  By way of example, in the Written Undertaking between the 1^st Defendant and D2, it was provided that:

“1. THE PLACING

In consideration of placing to the Placee 30,000,000 shares (“Placing Shares”) in the Company at the Placing Price, the Placee undertakes the followings with the Agent:

(i) The Placing Shares are for long term investment purpose;

(ii) From the date of this Agreement until the end of 18 months, the Placee agrees not to … sell…or otherwise dispose of any of the Placing Shares (“Lockup”),

except (i) with the prior written consent of [the Plaintiffs] or; (ii) if the share price of the Company reported by the HKEX closed below HK$0.60 per share (subject to customary adjustments in certain events, including share consolidation, share split, capitalization issues, capital distribution and rights issued by the company) for three consecutive trading days, then the Placee shall be entitled to dispose the Placing Shares;

(iii) The Placee undertakes to put in custody his Placing Shares at the Agent’s securities firm and will not transfer to any other location within the Lockup period, unless otherwise with the prior written consent of Rich Place Investment Limited and the Agent if the placee is procured by the Agent; and

(iv) Under no circumstance should the placee violate the Lockup. In the extremely event that the Placee default in his undertaking in disposing of his Placing Shares before the Lockup period, Rich Place Investment Limited shall be entitled to all of the profits made from the Placing Shares disposed by the Placee. In addition, the Placee shall pay a penalty being 30% of his initial purchase price of the Placing Shares, and shall keep the Agent and/or Rich Place Investment Limited indemnified for all costs and expenses (including legal costs).”

21.  It can be seen that the Written Undertakings contained terms which were materially equivalent to those found in the Placing Agreement: Clause 1(ii) to (iv) of the Written Undertakings mirrored Clause 1(C)(I) to (III) of the Placing Agreement.

22.  The 1^st Defendant’s case is that it entered into the Written Undertakings solely as the agent and on behalf of the Plaintiffs so that the Written Undertakings constituted agreements between the Plaintiffs and D2 to D7 only. The Plaintiffs’ case is that the 1^st Defendant entered into the Written Undertakings not only as agent for and on behalf of the Plaintiffs but also on its own behalf.

23.  On or about 9 January 2014, the 1^st Defendant transferred 439,500,000 of the Placing Shares to Tanrich Securities Limited with the authorisation of the Plaintiffs. 250,500,000 Placing Shares were retained by the 1^st Defendant for placement.

24.  Since 8 January 2014, the share price of Railsmedia was on a downward trend. By the time the market closed on 20 March 2014, the share price of Railsmedia dropped to HK$1.1.

25.  From mid-February to 20 March 2014, there were various enquiries and requests from the Placees to the 1^st Defendant’s account executives for the disposal of the Placing Shares.

26.  On 21 and 24 March 2014[5], D2 to D8 gave instructions to the 1^st Defendant to sell the Railsmedia Shares placed with them. Eventually, a total of 45.5 million of the Placing Shares (“Disposed Shares”) were sold in the market. Some of the sale was executed by the 1^st Defendant but most of them by other third party securities firms e.g. Bright Smart Securities International (HK) Ltd, Philip Securities (Hong Kong) Ltd etc. Mr Law SC describes this in his Opening as the 1^st Defendant had “farmed out” the sale of D2 to D8’s Placing Shares.

	Disposals on 21 March 2014			Disposals on 24 March 2014
	Shares sold	Price per share (HK$)	Net proceeds (HK$)	Shares sold	Price per share (HK$)	Net proceeds (HK$)
D2	5,000,000	0.8478	4,223,743.28	3,000,000	0.6281	1,877,479.23
D3	-	-	-	1,500,000	0.6114	913,769.97
D4	6,000,000	0.7477	4,470,038.60	-	-	-
D5	4,000,000	0.8432	3,360,784.76	6,000,000	0.5773	3,451,159.71
D6	5,000,000	0.8363	4,166,449.67	-	-	-
D7	-	-	-	1,000,000	0.6354	633,072.90
D8	7,000,000	0.7580	5,289,557.52	7,000,000	0.6163	4,300,592.88
Sub-Total	27,000,000			18,500,000
TOTAL	45,500,000 shares in total over the 2 days

27.  By the time the market closed on 24 March 2014, the share price of Railsmedia dropped to HK$0.73.

28.  On 28 March 2014, the Plaintiffs issued the Writ in the present Action against the 1^st Defendant (“Writ”). By amendments to the Writ on 14 July 2014, D2 to D8 were added as defendants.

29.  On 31 December 2014, the 1^st Defendant issued Contribution Notice against D2 to D8 for an indemnity or contribution against the Plaintiffs’ claim against the 1^st Defendant.

30.  On 2 November 2016,

a.  the Plaintiffs, the 1^st Defendant and D5 entered into a Deed of Settlement and Release.

b.  the Plaintiffs, the 1^st Defendant and D6 entered into a Deed of Settlement and Release.

31.  On 17 November 2016,

a.  by way of a Consent Order entered into between the Plaintiffs, the 1^st Defendant and D5, the Plaintiffs’ action against D5 was dismissed and claims against the 1^st Defendant arising out of and in connection with the Plaintiffs’ action against D5 were withdrawn.

b.  by way of a Consent Order entered into between the Plaintiffs, the 1^st Defendant and D6, the Plaintiffs’ action against D6 was dismissed and claims against the 1^st Defendant arising out of and in connection with the Plaintiffs’ action against D6 were withdrawn.

32.  On 16 December 2016, the Plaintiffs, the 1^st Defendant and D4 entered into a Deed of Settlement and Release.

33.  On 3 February 2017, by way of a Consent Order entered into between the Plaintiffs, the 1^st Defendant and D4, the Plaintiffs’ action against D4 was dismissed and claims against the 1^st Defendant arising out of and in connection with the Plaintiffs’ action against D4 were withdrawn.

34.  On 27 April 2017, the Plaintiffs, the 1^st Defendant and D3 entered into a Deed of Settlement and Release.

35.  On 4 May 2017, by way of a Consent Order entered into between the Plaintiffs, the 1^st Defendant and D3, the Plaintiffs’ action against D3 was dismissed and claims against the 1^st Defendant arising out of and in connection with the Plaintiffs’ action against D3 were withdrawn.

36.  On 10 October 2017, the Plaintiffs, the 1^st Defendant and D8 entered into a Deed of Settlement and Release.

37.  On 18 October 2017, by way of a Consent Order entered into between the Plaintiffs, the 1^st Defendant and D8, the Plaintiffs’ action against D8 was dismissed and claims against the 1^st Defendant arising out of and in connection with the Plaintiffs’ action against D8 were withdrawn.

38.  Under the various Deeds of Settlement and Release, the Plaintiffs had received a total of over HK$23.7 million.

39.  On 16 October 2017, default judgment was entered in favour of the 1^st Defendant against D2.

40.  On 23 November 2017, default judgment was entered in favour of the Plaintiffs against D2 for the sum of HK$6,451,222.51 with interest.

Deliberation

41.  In this Action, the Plaintiffs seek damages against the 1^st Defendant for:

a.  breach of 3 implied terms of the Placing Agreement;

b.  breach of fiduciary duties as agent;

c.  breach of the Collateral Agreement;

d.  procuring breach of the Written Undertakings.

42.  The pleaded loss suffered as a result of the drop in value from 21 to 24 March 2014 of the 1^st Plaintiff’s retained 53,918,560 Railsmedia shares said to be attributable to D2 to D8s’ disposal of their Placing Shares and the 1^st Defendant’s breaches and procurement of breaches by D2 to D8 amounts to HK$19.9 million odd.

43.  The 1^st Defendant denies it is liable to the Plaintiffs at all. A summary of its case can be found in Mr Smith SC’s Opening. For the present purpose, the same can be simplified into a few propositions.

44.  First, by reason of the Settlement Deeds and the Consent Orders, the 1^st Defendant has no liability with regards to the Disposed Shares of those Defendants with whom the Plaintiffs and the 1^st Defendant have settled.

45.  This is accepted in the Plaintiffs’ Opening at para 25:

a.  The Plaintiffs had entered into tripartite deeds of settlement and release with the 1^st Defendant, D3-D6 and D8. As a result, the Plaintiffs’ claims against D3-D6 and D8 were dismissed and the Plaintiffs’ claims against the 1^st Defendant arising out of or in connection thereof have also been withdrawn. These claims accounted for 36.5 million out of 45.5 million of the Disposed Shares.

b.  Thus, insofar as this trial is concerned, the question is whether the 1^st Defendant should be liable for the wrongful disposal of the remaining 9 million of the Disposed Shares relating to D2 and D7.

46.  Second, the 1^st Defendant was not under any duty to ensure compliance with the Placees Custody Undertaking or the Written Undertakings:

a.  The 1^st Defendant as a placing agent owed no duty to police or enforce any agreement or undertakings between the Plaintiffs and the Placees.

b.  Similarly, the 1^st Defendant did not owe any fiduciary duties to the Plaintiffs in that regard.

c.  This is not altered by the Placing Agreement which exhaustively and expressly set out the terms of engagement and the 1^st Defendant’s scope of duty, which did not include any terms for the 1^st Defendant to enforce or ensure compliance with the Placees Custody Undertaking or the Written Undertakings. Those undertakings were given only by the Placees in favour of the Plaintiffs.

d.  The Alleged Collateral Agreement did not exist.

47.  Third, the 1^st Defendant did not breach any of the alleged duties even if they existed.

48.  Fourth, the 1^st Defendant was not liable for any tortious act of inducing breach of contract by the Placees, since the legal requirements are not satisfied.

The issues and witnesses

49.  The parties have framed the issues slightly differently. In this court’s view, the issues to be tried on liability can be simplified as follows[6]:

a.  Did the Placing Agreement contain any of the 3 implied terms? If so, has the 1^st Defendant breached any of them? (“1^st Issue”)

b.  Did the 1^st Defendant owe any fiduciary duties to the Plaintiffs? If so, has the 1^st Defendant breached any such fiduciary duties? (“2^nd Issue”)

c.  Did the Collateral Agreement exist? If so, has the 1^st Defendant breached the Collateral Agreement? (“3^rd Issue”)

d.  Is the 1^st Defendant liable to the Plaintiffs for the tort of procuring breach of the Written Undertakings entered into between the Plaintiffs on the one hand, and D2 and D7 on the other? (“4^th Issue”)

50.  At trial,

a.  the Plaintiffs called 1 witness: Samson Hui;

b.  the 1^st Defendant called 2 witnesses: Vien Ip and Mark Ho.

51.  It should be noted at the outset that save for the existence or otherwise of the Collateral Agreement, there are no significant factual disputes between the parties.

52.  In addition, the parties have procured separate experts’ reports from Mr Clive Rigby for the Plaintiffs and Mr Cheng Kai Sum for the 1^st Defendant on inter alia the effect if any did the 1^st Defendant’s conduct in carrying out D2 to D8s’ instructions to dispose of their 45.5 million Placing Shares in its custody and/or releasing those Placing Shares from its custody have on the price of the 1^st Plaintiff’s retained Railsmedia shares on 21 and 24 March 2014.

53.  Those reports are really geared towards assessment of damages, in the event that liability is established. Since this is a trial on liability only, the experts were not called but Mr Law SC and Mr Smith SC quite sensibly agreed that this court could take into account what the experts managed to agree in their Joint Report dated 18 May 2020. At paras 4 to 8, the area of agreement between them was stated as follows:

“4. The Defendants’ selling in Railsmedia shares partly contributed to the fall in the market price over the two days period on 21 and 24 March 2014. (Mr. Rigby’s Report para. 16 and Mr. Cheng’s Report paras. 98 & 169)

5. The Defendants’ selling in Railsmedia was not fully or solely responsible for the closing price drop from HK$1.10 to HK$0.73 over the two days period on 21 and 24 March 2014. (Mr. Rigby’s Report para. 23 and Mr. Cheng’s Report paras. 97, 155 & 169).

6. The extent of potential impact cannot be determined objectively and scientifically. (Mr. Rigby’s Report para. 23 and Mr. Cheng’s Report paras. 85, 98 & 169)

7. In relation to the term “price” mentioned in the Expert Issues, Mr. Cheng assumed that it should be referring to market price of Railsmedia shares. This is concurred by Mr. Rigby. (Mr. Cheng’s Report para. 74 e) (i))

8. The 18 months long lock-up period was not commonly found in disposals of existing shares by substantial shareholders via placement.” (emphasis added)

Breach of implied terms of the Placing Agreement

54.  The 3 pleaded implied terms are:

(a)  The 1^st Defendant shall ensure, or alternatively apply its best endeavours to ensure, that the Placees Custody Undertaking is complied with after the Placing Shares are put into its custody.

(b)  The 1^st Defendant will prevent, or alternatively apply its best endeavours to prevent, the breach of the Placees Custody Undertaking after the Placing Shares are put into its custody.

(c)  The 1^st Defendant will not assist in, permit or suffer any breach of the Placees Custody Undertaking. (collectively “Implied Terms”)

55.  As a preliminary observation, it should be immediately noted that the Implied Terms sought to impose continuing obligations in one form or another on the part of the 1^st Defendant to enforce the Placees Custody Undertaking and hence indirectly the Lock Up for 18 months after the placement had completed. This was solely for the benefit of the 1^st Plaintiff who still retained some Railsmedia shares after the placement but there was no discernible benefit to the 1^st Defendant as the placing agent under the Placing Agreement.

56.  Nor was the 1^st Defendant separately remunerated for taking up such obligations. There was no express obligation on the part of the Plaintiffs to reasonably remunerate the 1^st Defendant for any extra obligations. Under the Placing Agreement, it only received a flat fee of HK$3.5 million for procuring the Placees and that was it. Nor was there any suggestion that a term as to reasonable remuneration be implied into the Placing Agreement.

57.  In Attorney General of Belize v Belize Telecom Ltd & Anor [2009] 1 WLR 1988 at [17] Lord Hoffmann proffered the following proposition as a general starting point:

“The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

58.  As an exception, the guiding principles for the implication of terms into an express contract can be found in Kensland Realty v Whale View Investment (2001) 4 HKCFAR 381 at [23] and [59] where both Bokhary and Ribeiro PJJ adopted the oft-cited observations of Lord Simon of Glaisdale (speaking for the majority) in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20, 26 ie for a term to be implied, the following conditions (which may overlap) must be satisfied:

a.  it must be reasonable and equitable;

b.  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;

c.  it must be so obvious that “it goes without saying”;

d.  it must be capable of clear expression;

e.  it must not contradict any express term of the contract.

59.  In the more recent Supreme Court decision of Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 at [21], Lord Neuberger made a number of relevant comments on the aforesaid summary given by Lord Simon of Glaisdale:

“…Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 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 posed by [him] with the utmost care”, to quote from Lewison, The Interpretation of Contracts 5^th ed (2011), p 300, para 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.”

60.  Still more recently, in Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2019] HKCA 261, the Court of Appeal made 3 pertinent observations on the law at [25] - [26] and [32]:

“25. …in Marks & Spencer plc v BNP Paribas Securities Services [2016] AC 742, the Supreme Court clarified that the law on implied term had not been changed…

26. Lord Carnwath JSC[7] surveyed the judicial authorities decided after Belize Telecom and concluded that none of them regarded there to have been any relaxation of the traditional, highly restrictive approach to implication of terms…

…

32. …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)

61.  At section B4 of the Plaintiffs’ Opening, Mr Law SC set out his submissions as to why the 3 terms should be implied by reference to (i) the surrounding circumstances known to the parties and (ii) the express terms of the Placing Agreement.

62.  As far as (i) is concerned, his submission boils down to this: given the Plaintiffs did not know any of the Placees who were located and procured by the 1^st Defendant, the long Lockup Period, the very substantial discount of the placing price and the significant number of the Placing Shares to be placed under the Placing Agreement amounted to 16.79% of the Railsmedia, it is a matter of common and commercial sense that the parties would want to make sure that the Placees would comply with the Lockup during the Lockup Period.

63.  Mr Law SC may be right in suggesting the Plaintiffs would want to make sure the Placees would comply with the Lockup but it is entirely unclear to this court why the 1^st Defendant as the placing agent would also have an interest after the completion of the placement to make sure the Placees would comply with the Lockup.

64.  As far as (ii) is concerned, Mr Law SC places heavy emphasis on Clause 1(C)(II) of the Placing Agreement ie the Placees Custody Undertaking but for which the Plaintiffs would have no means to police or monitor if the Lockup had been complied with. This is because they would not be able to tell if a particular Placee had sold the Placing Shares.

65.  Mr Law SC submits that Clause 1(C)(II) is of paramount significance and it shows that the 1^st Defendant has a significant role to play:

a.  First, usually one would expect a placee can choose where his shares are to be kept but the Placees Custody Undertaking mandates the Placees to keep the Placing Shares with 1^st Defendant.

b.  Second, once the Placing Shares are in the 1^st Defendant’s custody, they cannot be transferred to any other location during the Lockup Period without the prior written consent of both the Plaintiffs and the 1^st Defendant.

66.  Clause 1(C)(II) is to enable the 1^st Defendant to ensure that the Lockup can be complied with through 2 means:-

a.  The 1^st Defendant would know if any Placee would deal with his Placing Shares in breach of the Lockup.

b.  Should a Placee want to transfer the Placing Shares to say another securities firm, it would not be possible without first obtaining the written consent of the Plaintiffs and the 1^st Defendant. The purpose is plainly to enable the 1^st Defendant to monitor and ensure that the Placees would comply with the Lockup and the Placees Custody Undertaking. The 1^st Defendant’s role is akin to a gate-keeper.

67.  In light of the above, Mr Law SC submits that both the officious bystander test and the business efficacy test are satisfied. The officious bystander test is satisfied by reason of the custody of the Placing Shares and the power to give or withhold consent, it would have been obvious to any officious bystander that, with such powers, it would have been a term of the Placing Agreement that the 1^st Defendant will not assist or permit any breach of the Placees Custody Undertaking i.e. the 3^rd Implied Term.

68.  The business efficacy test is also satisfied since without the Implied Terms, the Placing Agreement would lack commercial or practical coherence. Whilst the Placing Shares are kept in the 1^st Defendant’s custody and that the 1^st Defendant’s consent has to be obtained before any transfer out, it would be commercially incoherent to suggest that:

a.  the 1^st Defendant is free to permit or assist in any breach of the Placees Custody Undertaking;

b.  the 1^st Defendant has no duty to prevent / use best endeavours to prevent any placee’s breach of the Placees Custody Undertaking;

c.  the 1^st Defendant has no duty to ensure / using best endeavours to ensure that the Placees Custody Undertaking is complied with.

69.  At this juncture, this court should observe that the requirement in Clause 1(C)(II) for the Placees to obtain the 1^st Defendant’s written consent before transferring the Placing Shares to any other location within the Lockup Period was added by the 1^st Defendant itself, as shown in the correspondence. Further, throughout her oral testimony, Vien Ip had maintained that the requirement for the Placees to seek the 1^st Defendant’s written consent was added by the 1^st Defendant for the 1^st Defendant’s benefit. Mr Smith SC submits that it would wholly defy commercial and common sense if the requirement for the 1^st Defendant’s consent was added by the 1^st Defendant voluntarily with a view to taking on the lengthy duty to police the Placees Custody Undertaking, without any corresponding consideration in return. There is force in that submission.

70.  In this court’s view, if the Plaintiffs wished to impose on the 1^st Defendant a duty to prevent or to use its best endeavours to prevent any placee’s breach of the Placees Custody Undertaking and a duty to ensure or to use its best endeavours to ensure that the Placees Custody Undertaking was complied with, and if the 1^st Defendant was agreeable to be subject to such a duty, the simplest thing was to write it into the Placing Agreement. The Placing Agreement was “homemade” by the Plaintiffs’ staff who started the ball rolling by sending a draft to Vien Ip and Daniel Sheng (“Sheng”), Equity Capital Market Manager of the 1^st Defendant, for comment on 30 December 2013. There was plenty of opportunity to comment on and comments were in fact made to inter alia the draft Placing Agreement which was revised up to its signing on 7 January 2014. If the Plaintiffs thought the Placing Agreement would lack commercial or practical coherence without imposing such a duty on the 1^st Defendant in it, the obvious thing to do was write it into the Placing Agreement.

71.  In the Plaintiffs’ Closing, the same arguments are adopted by Mr Law SC.

72.  In addition, Mr Law SC submits the 1^st Defendant’s argument that it was not a party to the Written Undertakings should be rejected, given the fact that the 1^st Defendant was expressly named as a party thereto. Assuming, for the sake of argument, that Mr Law SC is right that the 1^st Defendant was a party to the Written Undertakings so that, in addition to the Plaintiffs, it also had the right to enforce the Written Undertakings given by D2 to D7, it is unclear to this court how that right can assist in the implication of duties on the part of the 1^st Defendant into the Placing Agreement.

73.  Despite Mr Law SC’s gallant effort, this court is not persuaded that any of the 3 terms should be implied into the Placing Agreement. The reasons are these.

74.  First, this court agrees with Mr Smith SC that in general, a placing agent is a type of canvassing agent, an agent who is merely responsible for introducing a third party, in this case the Placees, to the principal ie the Plaintiffs for a commission or a fee. As such, a placing agent is not liable for the defaults of the parties it introduced. Woo Hing Keung Lawrence v CEF Brokerage Limited [2008] 3 HKLRD 234 is a case in which a stock brokerage acted for both the seller of shares and the counterparty purchaser of the shares. The purchaser defaulted on the transaction and the client sued the brokerage for his loss on the basis that the brokerage was personally liable to honour the transaction. Both the Court of First Instance and the Court of Appeal held it was not.

75.  Second, the Placing Agreement made no provision that the 1^st Defendant was under any obligation to ensure the compliance of the Lockup, the Placees Custody Undertaking or the Written Undertakings by the Placees. Rather, the obligation to observe the Lockup, Placees Custody Undertaking or the Written Undertakings was expressly stated to be squarely on the Placees alone and enforceable by the Plaintiffs themselves. Since the Placees were already under an obligation to observe the Lockup, Placees Custody Undertaking and the Written Undertakings, why should an additional party ie 1^st Defendant be placed under a duty to ensure compliance with the same by the Placees when, on the contemporaneous correspondence, the Plaintiffs had not asked for and the 1^st Defendant had not given its consent to it?

76.  It is important to note that the Placing Agreement was finalised only after serious negotiations of its commercial terms and rounds of revisions to the drafting of its terms by commercially sophisticated parties, albeit without the assistance of lawyers. There was not a hint in the contemporaneous emails that there should be any obligation on the 1^st Defendant other than to procure placees for the Plaintiffs. There was also no hint that the usual role of a placing agent as a canvassing agent should be revised. If the issue of monitoring the compliance of the Lockup, the Placees Custody Undertaking or the Written Undertakings by the Placees was such a important concern of the Plaintiffs, there should have been some electronic footprint in the contemporaneous emails. But there was not. It must be remembered that the implication of terms on the ground of necessity is not established by showing that the contract would be improved by the addition of the missing term. It may well be that the Placing Agreement would have been improved by the Implied Terms as far as the Plaintiffs are concerned. This court is no persuaded that is the case with the 1^st Defendant.

77.  Third, there was no suggestion that the 1^st Defendant was to be separately remunerated for the additional duties, continuing for 18 months, under the Implied Terms to monitor the Placees’ obligations to observe the Lockup, the Placees Custody Undertaking or the Written Undertakings. How could it be said that it goes without saying that 1^st Defendant would accept the additional duties for free? After all, the 1^st Defendant was a commercial entity operating for profits. It stands to reason that once it had earned its flat fee of HK$3.5 million, it would move its focus onto some other remunerative ventures. One must also bear in mind that the 1^st Defendant had no interest in the Placed Shares or the remaining Railsmedia Shares held by the 1^st Plaintiff once it had earned its fee. If one asks the officious bystander whether a securities brokerage would do anything for free, not to serve its own interest but purely to serve the Plaintiffs’, this court is not persuaded that the answer would be “yes, it goes without saying”.

78.  Not only that, the 1^st Defendant had its own concerns since it owed duties to the Placees as beneficial owners of the Placed Shares under the Client Agreement and the SFC Code of Conduct and it had to respect the proprietary rights of the Placees. Whether or not on a strict legal analysis such concerns could be dispelled as argued by the Plaintiffs, it cannot be said that the Implied Terms are so obvious that it goes without saying that they should be implied into the Placing Agreement.

79.  Fourth, since on under the Placing Agreement, the principal obligation of the 1^st Defendant was to procure placees to take up the Placing Shares, how could it be said that the Placing Agreement could not work or be commercially incoherent without the additional duties under the Implied Terms? As a matter of fact, the Placing Agreement worked perfectly well without the Implied Terms: placees were found and procured by the 1^st Defendant to take up the Placing Shares and to execute the Written Undertakings. The Placing Shares were also put in the custody of the 1^st Defendant.

80.  This court agrees with Mr Smith SC’s submission in his Closing that the sole basis of necessity for the Implied Terms is a necessity that only serves the Plaintiffs’ self interests in finding out whether there was a breach of the Lockup, the Placees Custody Undertaking or the Written Undertakings by the Placees. This is insufficient to meet the highly restrictive approach to implication of terms into a written contract. After all, the Plaintiffs had legal rights against the Placees directly and they in fact learned of the disposal of the Disposed Shares by monitoring the 1^st Defendant’s CCASS records. Eventually, the Plaintiffs obtained from the 1^st Defendant by way of a request for further and better particulars in this Action a schedule identifying each and every sale of the Placing Shares disposed of by D2-D8 on 21 and 24 March 2014 and then issued legal proceedings against D2 to D8.

81.  For the above reasons, this court finds the Placing Agreement did not contain any of the 3 Implied Terms. That is enough to dispose of the 1^st Issue.

Breach of fiduciary duties

82.  It does not appear to this court that Mr Law SC is very enthusiastic about this part of the Plaintiffs’ claim, and to his credit, rightly so.

83.  In para 51 of his Opening, all he submits is this:

“This can be dealt with briefly. D1 as the agent of Ps (and as the custodian of the placing shares) clearly owe to Ps to act in the best interest of Ps and to take all reasonable steps to enforce the Written Undertakings…”

84.  At para 71 of his Closing, Mr Law SC’s submission boils down to this:

“Ps shall adopt Ps Opening §51. All 3 pleaded fiduciary duties follow logically and naturally from the Implied Terms. D1 has therefore breached them for the same reasons as submitted above.”

85.  The answer to this part of the Plaintiffs’ claim is simple.

86.  First, the 1^st Defendant was only the agent of the Plaintiffs for the purpose of procuring placees to take up the Placing Shares. If the 1^st Defendant owed any duties to the Plaintiffs, those duties would only be for such a purpose. Once the placement was complete, the 1^st Defendant was no longer an agent of the Plaintiffs and would not owe any duty to them.

87.  Second, the 3 pleaded fiduciary duties follow closely from the 3 Implied Terms – they are redundant as they add nothing to the Implied Terms. Given this court’s rejection of the Implied Terms, there is no additional leg for the Plaintiffs to stand on in support of its claim for the existence of the alleged fiduciary duties.

Breach of Collateral Agreement

88.  This is the only major factual dispute which this court has to resolve.

89.  The Plaintiffs’ case is that the Collateral Agreement was reached at the Jan 6 Meeting attended by Samson Hui, CY Hui and Cheung for the Plaintiffs. The Collateral Agreement, as pleaded in para 3A of the Re-Amended Statement of Claim, was said to have been reached between the Huis on behalf of the Plaintiffs and Vien Ip on behalf of the 1^st Defendant and contained 3 terms:

a.  the placees would be subject to the Lockup (“1^st term”);

b.  the Placing Shares would be placed in the custody of the 1^st Defendant during the Lockup Period (“2^nd term”); and

c.  the 1^st Defendant would ensure that the Placees Custody Undertaking be complied with by the placees after the Placing Shares were placed in its custody (“3^rd term”).

90.  The 1^st and 2^nd terms were actually reflected in the Placing Agreement at Clause 1(C)(I) and (II) as the Placees’ obligations but the 3^rd term was not expressly recorded in the Placing Agreement at all.

91.  Of all the 3 attendees at the Jan 6 Meeting, only Samson Hui testified on the Collateral Agreement.

92.  This alleged Collateral Agreement is denied by the 1^st Defendant specifically Vien Ip who testified that no Collateral Agreement was ever reached as alleged. Her evidence is that the sole purpose of the Jan 6 Meeting was to introduce CY Hui to the staff of the 1^st Defendant and for CY Hui to sign the account opening forms on behalf of the Plaintiffs since Samson Hui was not a director or authorised signatory of the Plaintiffs. According to Vien Ip at para 6 of her Supplemental Witness Statement dated 3 December 2019 (“Ip 2”), prior to 31 December 2013, the Plaintiffs and the 1^st Defendant had already reached in principle agreement on the major terms of the placing arrangement, including the Lockup, the Conditions for Release and the Procurement Duties.

93.  According to the Plaintiffs’ own chronology, Samson Hui had commenced discussions with Vien Ip about the private placement in November / December 2013. The contemporaneous correspondence also shows that on 30 December 2013 at 3:40pm, a draft Placing Agreement and a draft Written Undertaking were sent by the Plaintiffs to Vien Ip and Sheng for their comment.

94.  This court has carefully considered the testimony of Samson Hui and Vien Ip at the trial and assessed it against such of the documentary evidence as there is and the known and undisputed circumstances of this case. This court has in particular considered the inherent probabilities or otherwise of their testimony and assessed their credibility accordingly. Out of abundance of caution, this court has also reviewed its own notes taken at the trial and the official transcript of the trial in order to refresh its memory.

95.  On the aforesaid basis, this court finds Vien Ip to be a credible witness, notwithstanding Mr Law SC’s criticism of her as being evasive in his Closing, and that the Plaintiffs have failed to come up to proof their case on the existence of the Collateral Agreement. The reasons are these.

96.  First, the alleged Collateral Agreement was added to the Statement of Claim by way of red amendment in December 2018, while the Action was commenced 4 ½ years ago in March 2014. In Samson Hui’s 1^st witness statement dated 15 August 2018 (“Samson 1”), all he said about the meeting was:

“5. On 6 January 2014, a meeting was held between Vien, CY Hui and I on the terms of the placement and the major terms of the placement including the price, the quantity of the shares in Railsmedia to be sold and the lockup period for the placees were agreed at the meeting.”

97.  It was only in the Supplemental Witness Statement of Samson Hui dated 31 December 2019 (“Samson 2”), almost 6 years after the event, that the alleged Collateral Agreement was first mentioned. Normally, witnesses’ memory of the material event only fades, rather than improves, with time. Samson Hui seems to be an exception.

98.  Mr Smith SC submits that the alleged Collateral Agreement is a mere afterthought and wholly incredible. There is not a shred of contemporaneous evidence in support of the alleged Collateral Agreement, despite discussions between the parties concerning the terms of inter alia the Placing Agreement in late December 2013 and early January 2014. This court agrees.

99.  As observed by DHCJ Jin Pao SC in Leung Chin Sing Rabo & Anr v Ko Chun Hay Kelvin [2021] HKCFI 2242 at [42]:

“…The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm) at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J. Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded ...”

100.  At [43], DHCJ Jin Pao SC further observed that:

“In Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) at [16-20], Leggatt J (as he then was) set out a detailed analysis on the unreliability of human memory and the impact on the civil litigation process on recalling past events. In view of these considerations, at [22], it was held that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollection of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. These observations were cited with approval by Kwan VP in Galleria (Hong Kong) Ltd v DBS Bank, Hong Kong Branch [2021] HKCA 611 at [175].”

101.  During cross-examination in the morning of Day 2, Samson Hui explained that the omission to mention the Collateral Agreement in Samson 1 was because he “did not think clearly”, he “did not put much hard work in it”, he “did not put much details in it” and he “carelessly missed [the Collateral Agreement] out, did not put it in… [Samson 1]”. That explanation is highly unsatisfactory since the 3^rd term of the Collateral Agreement is critical to the Plaintiffs’ claim against the 1^st Defendant for breach of it.

102.  Further, Samson Hui’s explanation for the omission to mention the Collateral Agreement in Samson 1 is a clear testament to the validity of Leggatt J’s warning about the “unreliability of human memory and the impact on the civil litigation process on recalling past events.”

103.  Second, while in the box during cross-examination on Day 2 before the morning break, Samson Hui actually admitted that the Collateral Agreement was added to the original Statement of Claim and Samson 2 as an afterthought as it would be useful to the Plaintiffs’ case. The following exchange between Mr Smith SC and Samson Hui was recorded at pp 103-4 of the transcript.

“MR SMITH: Let me just put it to Mr Hui.

Q. Why was it that it took four-and-a-half years for you to put this right assuming you’ve got it wrong in the first place?

A. In fact, I myself am not that strong in the knowledge of the documents. Regarding the first statement, I made it carelessly and also I did not put down some very important information. And regarding the second statement, since the time was going nearer and nearer to the date of the trial, so I put more time and effort in thinking and I put down more important information in it.

Q. Well, I suggest to you, Mr Hui, that the Collateral Agreement that you have referred to in the supplemental statement and again the amended statement of claim simply didn’t happen. You...

A. Disagree.

Q. And the reason that it gets into the witness statement and the pleading some four-and-a-half years later is because you or someone else came to the conclusion that it would support your case better to have the Collateral Agreement.

A. It’s after I have thought about it and I reckoned that it’s useful, so I put it down in it.”

104.  Third, after the alleged Collateral Agreement was said to have been reached at the Jan 6 Meeting in the afternoon, there were further minor revisions to the Placing Agreement and the Written Undertakings proposed by Sheng at 20:13 that evening. It is inherently improbable that the parties would have decided not to make use of the opportunity to record the terms of the alleged Collateral Agreement in writing, when other much minor amendments to the Placing Agreement were proposed.

105.  Fourth, the Plaintiffs, for reasons unknown, decided not to call CY Hui to testify on what happened at the Jan 6 Meeting, particularly the alleged Collateral Agreement. This court is entitled to draw an adverse inference against the Plaintiffs on this issue: Telings International Hong Kong Ltd v John Ho & Ors unrep., CACV 10/2010, 22 October 2010 at [79] per Le Pichon JA.

106.  To conclude, this court is not satisfied that the Plaintiffs have proved on balance of probabilities the existence of the Collateral Agreement. That is dispositive of the 3^rd Issue.

Procuring breach of the Written Undertakings

107.  As summarized by Lord Sumption NPJ in Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd (2020) 23 HKCFAR 348 at [162], the 5 elements of this tort are (i) a contract (ii) known to a third party who (iii) does something which induces or persuades a contracting party to break it (iv) intending to bring about the breach and (v) thereby causing loss. Most of the problems in this area of law have concerned the kind of acts which will be regarded as having “induced” the breach of contract and the necessary mental state of the alleged inducer.

108.  The elements (i) and (ii) are clearly present in this case.

109.  On (iii), at [167], Lord Sumpton NPJ summarized the element of “inducement” in the tort as follows:

“167. The effect of the judgments in OBG is that the act said to constitute the inducement must be targeted at the plaintiff, in the sense the breach of his contract is either an end in itself or the means to an end. The trade union cases in which the union procures a breach of its members’ contracts of employment are generally cases in which breach of the contract is an end in itself. But, as Lord Hoffmann pointed out, it is more usual for the inducer to be out to serve some commercial interest of his own. He is liable because he knows and intends the breach of contract to be a means to that end.” (emphasis added)

110.  On (iv) ie intention to bring about the breach, at [164] – [165] of his Judgment, Lord Sumpton NPJ explained that the alleged inducer must know not just the facts but their legal consequences of his acts in these terms.

“164. Lord Hoffmann [in OBG Ltd v Allan [2008] 1 AC 1] dealt separately with knowledge and intent. He dealt with knowledge at [39]:

“To be liable for inducing breach of contract, you must know that you are inducing a breach of contract. It is not enough that you know that you are procuring an act which, as a matter of law or construction of the contract, is a breach. You must actually realize that it will have this effect. Nor does it matter that you ought reasonably to have done so.”

It follows that the alleged inducer must know not just the facts but their legal consequence…

165. The test of intention is related to that for knowledge:

‘42. … It is necessary for this purpose to distinguish between ends, means and consequences. If someone knowingly causes a breach of contract, it does not normally matter that it is the means by which he intends to achieve some further end or even that he would rather have been able to achieve that end without causing a breach. Mr Gye [in Lumley v Gye (1853) 2 El & Bl 216] would very likely have preferred to be able to obtain Miss Wagner's services without her having to break her contract. But that did not matter…

43. On the other hand, if the breach of contract is neither an end in itself nor a means to an end, but merely a foreseeable consequence, then in my opinion it cannot for this purpose be said to have been intended. That, I think, is what judges and writers mean when they say that the claimant must have been ‘targeted’ or ‘aimed at’.

166. Lord Nicholls’ analysis was the same. He spoke at [191] of the inducer’s “intentional causative participation” in the breach.” (emphasis added)

111.  On (v), when damage can be proved or inferred, the plaintiff is entitled to recover in respect of that damage which was intended or, whether intended or not, was a consequence of the tort which is not too remote: Clerk & Lindsell on Torts (23^rd ed) at para 23-53.

112.  Mr Law SC submits that on the undisputed evidence, the 1^st Defendant has induced or procured the breach of the Written Undertakings by the 2^nd to 7^th Defendants, albeit most of them have settled with the Plaintiffs and the 1^st Defendant’s liability was accordingly released. The remaining element of loss to the Plaintiffs is that caused by D2 and D7s’ breaches of the Written Undertakings for disposing of 9 million out of 45.5 million Disposed Shares.

113.  This court is satisfied with the 1^st and 2^nd elements of the tort.

114.  On the 3^rd element, Mr Law SC cites a number of authorities and submits that “assistance” to the contract-breaker is sufficient.

115.  In Global Resources Group v Mackay [2009] SLT 104 at [13], Lord Hodge held that:

“…the tort or delict is not confined to circumstances where A has to persuade B to break his contract but can also be committed where A has dealings with B which A knows are inconsistent with the contract between B and C. In either event A induces or assists B to do something (or to refrain from doing something) which involves B breaking his contract with C”.

116.  In Kawasaki Kisen Kaisha Ltd v James Kemball Ltd [2021] 1 CLC 284 (David Richards, Henderson and Poppelwell LJJ), the English Court of Appeal followed Lord Hodge in Global Resources Group v Mackay on what constituted “inducement” to break a contract. At [20] – [21], Poppelwell LJ explained that decision as follows:

“20. In Global Resources Group v Mackay [2008] CSOH 148; 2009 SLT 104, Lord Hodge, then sitting in the Outer House, articulated the tort (or delict in Scotland) in these terms at paragraph 11: ‘A commits the delict or tort of inducing a breach of contract where B and C are contracting parties and A, knowing of the terms of their contract and without lawful justification induces B to break that contract.’

21. He went on in the following paragraphs to identify the five ingredients of the tort as being:

(1) there must be a breach of contract by B;

(2) A must induce B to break his contract with C by persuading, encouraging or assisting him to do so;

…

(4) A must intend to procure the breach of contract either as an end in itself or as the means by which he achieves some further end…” (emphasis added)

117.  However, at [32] – [33], Poppelwell LJ added:

“32. First, [Lord Hoffmann and Lord Nicholls in OBG v Allan] make clear that conduct cannot qualify as inducement if it constitutes no more than preventing B from performing the contract with C as one of its consequences. There must be some conduct by A amounting to persuasion, encouragement or assistance of B to break the contract with C.

33. Secondly, this participation by A in B’s breach, must, in Lord Hoffmann’s words, have ‘a sufficient causal connection with the breach by the contracting party to attract accessory liability’ or, in Lord Nicholls’ words, so as to amount to ‘causative participation’. It is because of the causative requirement that ‘inducement requires the defendant’s conduct to have operated on the will of the contracting party’ in the words of Toulson LJ. If A’s conduct is not capable of influencing a choice by B whether or not to breach the contract, it is not capable of amounting to inducement; it cannot operate on the mind or will of B so as qualify as causative participation as an accessory to his breach.

34. Thirdly, the mental element of the tort requires that there must be an intention that the breach of the contract must at least be the means to an end, rather than simply the foreseen or intended consequence of the tortious conduct.” (emphasis added)

118.  Recently, in Eurasian Natural Resources Corporation Ltd v Dechert LLP & Ors [2022] EWHC 1138 (Comm), Waksman J at [163] and [167] made the following observation on the Inducement Requirement in a claim for inducement to breach of contract:

“163. … There is no doubt that the paradigm examples of the tort concern active persuasion or encouragement by A to B to do that which puts him in breach of contract with C, as A knows. But, as reflected in modern descriptions of the tort as one of accessory liability, knowingly assisting B to break the contract may be sufficient. That is especially so if, without A’s assistance, the breach of contract itself cannot be committed.

…

167. Accordingly, assisting the breach can be enough at least where the breach could not be committed without it. This was recognised by Popplewell LJ in Kawasaki. At paragraph 23 of the Judgment, having referred to the fact that liability for inducement is an accessory liability, the learned Judge said:

‘A commits a tort and attracts liability to C because he does something which joins in with the conduct of B in a way which makes him an accessory to the breaking of the contract by B.’” (emphasis added)

119.  Mr Law SC submits that the tort is committed when the 1^st Defendant accepted the Placees’ instructions and proceeded to sell the Placing Shares in breach of the Written Undertakings. The 1^st Defendant knew that to carry out the instructions would give rise to a breach of the Written Undertakings: Vien Ip’s 1^st Witness Statement (“Ip 1”) at [31]. In this case, the 1^st Defendant had assisted the Placees to sell the Placing Shares, which constituted a breach of the Written Undertakings given by them to the Plaintiffs.

120.  On the other hand, Mr Smith SC submits that what 1^st Defendant had done was merely “facilitating” a breach of the Written Undertakings which is insufficient to constitute procurement: Kawasaki Kisen Kaisha Ltd v James Kemball Ltd at [26].

121.  It seems to this court that, on the facts of this case, seeking to distinguish between “facilitating” a breach of the Written Undertakings and “assisting” a breach of the Written Undertakings is an intellectually challenging exercise. Rather, this court prefers to rest its decision on other grounds. On those grounds, the Plaintiffs’ claim against the 1^st Defendant for procuring breach of the Written Undertakings must fail.

122.  First, the act of procurement pleaded by the Plaintiffs in the Re-Amended Statement of Claim at para 17(b) is that:

“By carrying out the 2^nd to 8^th Defendants’ instructions to dispose of the Placing Shares in the custody of the 1^st Defendant and/or releasing the 2^nd to 8^th Defendants’ Placing Shares from its custody, the 1^st Defendant wrongfully induced, procured and/or facilitated the 2^nd to 8^th Defendants’ breaches of, and entered into dealings inconsistent with, the Written Undertakings.”

123.  Mr Smith SC submits that what the 1^st Defendant had done did not “operate on the will” of the Placees, and thus did not procure the breach of the Written Undertakings. In this court’s view, the evidence in this regard is very clear and Mr Smith SC is correct.

124.  Owing to the downward trend of the share price of Railsmedia since 8 January 2014, by the time the market closed on 20 March 2014, the share price of Railsmedia dropped to HK$1.1 – a drop of almost 50% from the closing price of HK$2.10 on 7 January 2014 within 2 ½ months. From mid-February to 20 March 2014, there were various enquiries and requests from the Placees to the 1^st Defendant’s account executives for the disposal of their Placing Shares.

125.  It is reasonably clear that the Placees must have already decided to sell the Disposed Shares before giving instructions to the 1^st Defendant to sell and naturally before the 1^st Defendant could have carried out their instructions. It follows that the act of the 1^st Defendant did not “operate on the will” of the Placees in procuring the breach of the Written Undertakings and there was no “causal connection” between the decisions of the Placees to sell and the 1^st Defendant’s decision to carry out those decisions: Kawasaki Kisen Kaisha Ltd v James Kemball Ltd at [33]. In fact, on the evidence, the 1^st Defendant tried to persuade the Placees to retract their decisions to sell by reminding them of their obligations under the Written Undertakings and the legal consequences that would follow from the sale. Further, Clause 4.3 of the 1^st Defendant’s standard Client Agreement reaffirms the above by providing that the Client, independently and without reliance on the 1^st Defendant, makes his own decisions and judgments with respect to his Instructions.

126.  Second, the Plaintiffs cannot prove the requirement of “intention” on the part of the 1^st Defendant.

127.  It was pleaded in the Re-Amended Statement of Claim at para 17(c)(iii) that:

“The 2^nd to 8^th[8] Defendants’ breach of the Written Undertakings was intended by the 1^st Defendant as a means to an end, i.e. to enable the 1^st Defendant’s clients to sell the Placing Shares in accordance with their wish.”

128.  Mr Smith SC submits this is clearly insufficient – the “end” must be an end that is desired by the 1^st Defendant itself, and not the Placees. This court agrees. In OBG Ltd v Allan [2008] 1 AC 1 at [43], Lord Hoffmann made this beyond doubt:

“On the other hand, if the breach of contract is neither an end in itself nor a means to an end, but merely a foreseeable consequence, then in my opinion it cannot for this purpose be said to have been intended. That, I think, is what judges and writers mean when they say that the claimant must have been “targeted” or “aimed at”. In my opinion the majority of the Court of Appeal was wrong to have allowed the action in Millar v Bassey [1994] EMLR 44 to proceed. Miss Bassey had broken her contract to perform for the recording company and it was a foreseeable consequence that the recording company would have to break its contracts with the accompanying musicians, but those breaches of contract were neither an end desired by Miss Bassey nor a means of achieving that end.” (emphasis added)

129.  Third, the Plaintiffs have failed to prove that they have suffered loss by any objective means. It is trite law that there is no tortious liability without proof of loss/ damage.

130.  In the Re-Amended Statement of Claim at paras 18 and 18A, it was pleaded that:

“18. As a result of the 1^st Defendant’s breaches and procurement of the 2^nd to 8^th Defendants’ breaches of the Written Undertakings, the share price of Railsmedia dropped from about HK$1.10 to HK$0.73 per share on 21 and 24 March 2014. By reason of the matters pleaded in paragraphs 16 and 17 above, the 1^st Plaintiff has suffered loss and damage.

Particulars of Loss and Damage

(a)

Decrease in value of the 1st Plaintiff’s 53,918,560 shares in Railsmedia which it still retains after the Placing Agreement

HK$19,949,867.2

18A. Further, by reason of the 1^st Defendant’s breaches and procurement of the 2^nd to 8^th Defendants’ breaches of the Written Undertakings, the Plaintiffs have suffered loss and damage of the amount as might reasonably have been demanded or obtained by the Plaintiffs from the 1^st Defendant as a quid pro quo for permitting the continuation of the aforesaid breaches and procurement of breaches (“negotiating damages”). The Plaintiffs will rely on its supplemental witness statement(s) and expert report(s) to be filed to support its claim for negotiating damages.”

131.  The alleged loss pleaded at para 18 of the Re-Amended Statement of Claim is clearly unsustainable. As stated earlier in this Judgment, the area of agreement between the Plaintiffs and the 1^st Defendant’s experts are these:

a.  The Defendants’ viz D2 to D8’s selling in Railsmedia shares partly contributed to the fall in the market price over the two days period on 21 and 24 March 2014.

b.  The extent of potential impact cannot be determined objectively and scientifically.

132.  What the Joint Expert Report informs this court is that:

a.  The combined effect of D2 to D8’s selling of the 45.5 million Railsmedia shares partly contributed to the fall in the market price of Railsmedia shares which cannot be determined objectively ie they cannot be proved on balance of probabilities.

b.  There is no evidence at all and no objective proof of the combined effect only of D2 and D7’s selling of the 9 million Railsmedia shares on their market price.

133.  After the various Deeds of Settlement and Consent Orders referred to earlier in this Judgment, this trial is only concerned with the question: whether the 1^st Defendant should be liable for the loss caused by the wrongful disposal of the remaining 9 million of the Disposed Shares relating to D2 and D7.

134.  Given that there is no evidence and no objective proof on the combined effect only of D2 and D7’s selling of the 9 million Railsmedia shares on their market price, this court is unable to accept that any loss has been suffered by the Plaintiffs as a result of D2 and D7’s breaches of the Written Undertakings.

135.  It is true that this trial is on liability only. But the Plaintiffs’ claim for the tort of procuring breach of the Written Undertakings still requires proof of some loss. In this regard, the Plaintiffs have pleaded a claim for (i) conventional compensatory damages and for (ii) negotiating damages.

136.  As far as compensatory damages are concerned, the above discussion is sufficient to dispose of it.

137.  As far as negotiating damages are concerned, the leading authority is the Supreme Court decision in Morris-Garner v One Step (Support) Ltd [2019] AC 649.

138.  At [91] and [92], Lord Reed JSC explained the nature of negotiating damages in these terms.

“[91] The use of an imaginary negotiation can give the impression that negotiation damages are fundamentally incompatible with the compensatory purpose of an award of contractual damages. Damages for breach of contract depend on considering the outcome if the contract had been performed, whereas an award based on a hypothetical release fee depends on considering the outcome if the contract had not been performed but had been replaced by a different contract. That impression of fundamental incompatibility is, however, potentially misleading. There are certain circumstances in which the loss for which compensation is due is the economic value of the right which has been breached, considered as an asset. The imaginary negotiation is merely a tool for arriving at that value. The real question is as to the circumstances in which that value constitutes the measure of the claimant's loss.

[92] As the foregoing discussion has demonstrated, such circumstances can exist in cases where the breach of contract results in the loss of a valuable asset created or protected by the right which was infringed, as for example in cases concerned with the breach of a restrictive covenant over land, an intellectual property agreement or a confidentiality agreement. Such cases share an important characteristic with the cases in which Lord Shaw's “second principle” and Nicholls LJ's “user principle” were applied. The claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the asset in question. The defendant has taken something for nothing, for which the claimant was entitled to require payment.” (emphasis added)

139.  At [95], Lord Reed JSC concluded as follows.

“[95] The foregoing discussion leads to the following conclusions:

…

(10) Negotiating damages can be awarded for breach of contract where the loss suffered by the claimant is appropriately measured by reference to the economic value of the right which has been breached, considered as an asset. That may be the position where the breach of contract results in the loss of a valuable asset created or protected by the right which was infringed. The rationale is that the claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the right in question, considered as an asset. The defendant has taken something for nothing, for which the claimant was entitled to require payment….” (emphasis added)

140.  To simplify matters, the learned editors of Chitty on Contracts 35^th Ed. at para 30-049 explained the decision of Morris-Garner v One Step (Support) Ltd in these terms:

“‘User’ damages and damages in lieu of specific performance or injunction The decision of the Supreme Court in Morris-Garner v One Step (Support) Ltd has established that in two types of case of breach of contract, a claimant, or at least one who cannot show that the breach of contract has caused a loss that is recoverable under another recognised head of damages, may recover damages that in effect compensate for the loss of a chance to negotiate a fee for agreeing to allow the defendant to do what it in fact did in breach of contract. The two types of case are (i) where the breach of contract involved the infringement of a proprietary right of the claimant (which seems to include some cases of breach of confidence); and (ii) when at the time of the hearing the claimant could have been awarded specific performance of an injunction but, as a matter of discretion, the court refuses to make such an order and instead awards damages under what is still often called Lord Cairns’ Act. The damages may be assessed by reference to the reasonable “user value” of the property right or a proportion of the profit that, at the time of breach, the defendant might have expected to make as result of the breach.”

141.  Mr Smith SC submits that in the present case negotiating damages are inapplicable because inter alia the Disposed Shares were shares that fully and beneficially belonged to the Placees, not the Plaintiffs. The Lockup and the Placees Custody Undertaking, which restrict the right of the Placees to dispose of their property, cannot give the Plaintiffs any proprietary interest to attract negotiating damages. There is considerable force in Mr Smith SC’s submission.

142.  If negotiating damages are inapplicable, as to which there is no answer from the Plaintiffs to Mr Smith SC’s submission other than that the matter should be left to the Master in assessing damages, this court is not satisfied that the Plaintiffs have established the 1^st Defendant’s act had caused loss to the Plaintiffs.

143.  For the above reasons, this court rejects the Plaintiffs’ claim.

Disposition and costs

144.  In the premises, the Plaintiffs’ claims are hereby dismissed.

145.  At the invitation of this court, the parties had made their submissions on costs at the end of the trial. It was agreed that costs should follow the event in case the Plaintiffs’ claims fail completely.

146.  There shall be an Order that costs of the Action be to the 1^st Defendant, to be taxed if not agreed, and paid by the Plaintiffs forthwith, certificate for 2 counsel.

147.  Lastly, this court thanks Leading Counsel on both sides for their helpful assistance.