ALAN HOO v. BENJAMIN LUNG

HCA 3049/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3049 OF 2001

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J U D G M E N T

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Introduction

1.  The plaintiff commenced this action on 7 July 2001.  It is based on two causes of action: breach of contract and breach of duty as an agent or fiduciary.  In short, the said breaches are said to arise from the manner in which a restaurant business in Shanghai called “Va Bene” was set up and operated by the defendant.  The said business began operation in about October 2001.

2.  The relief sought includes an injunction order enjoining the defendant from carrying on the said business under the name or trade mark “Va Bene”, a declaration order and damages (or, at the plaintiff’s option, an account of profits).

Background Facts

3.  The background facts can be summarised as follows.  Unless otherwise stated, they are undisputed.

4.  The plaintiff is a practising barrister in Hong Kong.  The defendant is a businessman who became involved in the restaurant business since about 1989.  Mr Tino Kwan runs a business of lighting works.

5.  The 3 individuals became friends since 1990.  In April 1992, they opened an Italian restaurant called “Va Bene” in Hong Kong (“Va Bene HK”).  This turned out to be a very successful business venture.  Va Bene HK was run through a company called Va Bene Ltd.  All 3 were directors of Va Bene Ltd.  The shares of Va Bene Ltd. were held by a Combined Resources Ltd. (“Combined Resources”).  The shares of Combined Resources were held by the 3 equally.

6.  In 2000, they started to discuss expanding the restaurant business to Shanghai.  In October 2000, they actually went to Shanghai to visit various potential sites.  Finally, they became interested in a site in a property development there known as “Xintiandi” (新天地).

7.  From October 2000 to March 2001, they were engaged in discussions with the Xintiandi developer regarding renting premises for opening a restaurant there.  The parties herein differ as to how much progress has been made in the course of the discussion.  The plaintiff contends in brief that all essential matters have been agreed (“Agreed Project”).  The defence, on the other hand, denies this and claims that there was no fruitful result, alternatively, there was nothing concrete (“pending project”).

8.  The phrase “the Project” will be used below from time to time to refer to the restaurant project in Shanghai without differentiating whether it should be the Agreed Project or merely the pending project.

9.  Unfortunately, while the Project was progressing, differences began to emerge among the 3.  It is hotly disputed at trial who was in the right and who was in the wrong.  Leaving the precise cause of that dispute aside, it resulted in cross-proposals by one party to the other about buying out the other party’s rights or interests in Va Bene HK.  To put the matter as mildly as can be, by then the plaintiff and Tino Kwan took a stance different from the defendant’s.

10.  The outcome of the parties’ discussion regarding the buy-out proposals was that the defendant was to buy out the rights or interests of the plaintiff and Tino Kwan in Va Bene HK.  This later resulted in the execution of two contractual documents.  Because these documents form the cornerstone of one of the plaintiff’s two causes of action, I will describe them in more detail.

11.  The first document (in point of time of execution) is called “Agreement for the Acquisition of ‘Va Bene’” dated 11 April 2001 (“the Sale Agreement”).  It was drafted by the parties’ respective solicitors.  There was apparently detailed pre-contract correspondence.  The parties to the document were Va Bene Ltd., Regal Well Ltd. (a company effectively controlled by the defendant) (“Regal Well”), the defendant, the plaintiff and Tino Kwan.

12.  The body of the contractual document itself consists of some 17 pages (21 clauses with sub-clauses).  There are 6 schedules and 6 annexures to it (consisting of over 90 pages).  The main purpose of the Sale Agreement was that Va Bene Ltd. was to sell Va Bene HK to Regal Well as a going concern including all the business assets of Va Bene HK (see also para. 36, plaintiff’s opening).  It is undisputed the 3 individuals were also parties to the Sale Agreement for several reasons: they were named recipients of the sale proceeds (clause 2 thereof), they were required to sign certain corporate documents (clause 9 thereof) and to pay certain costs (clauses 17 and 18 thereof).

13.  The second document is called “Shareholders’ Agreement in respect of Combined Resources Ltd.” dated 12 April 2001 (“the Shareholders’ Agreement”).  Similar to the Sale Agreement, it was also drafted by solicitors.  The parties to the document were the defendant, Tino Kwan, the plaintiff, Combined Resources and Va Bene Ltd.

14.  The body of the contractual document itself consists of some 20 pages (16 clauses with sub-clauses).  There are 3 schedules and 3 agreed drafts attached to it (consisting of about 20 pages).  The Shareholders’ Agreement has several purposes (see also para. 36, plaintiff’s opening).  First, the sale proceeds received by Va Bene Ltd. pursuant to the Sale Agreement was to be distributed to the shareholders by way of dividends of Va Bene Ltd. and Combined Resources.  Secondly, Combined Resources’ business should be limited to holding the following assets, namely, a property in Italy, a boat and shares in Indochine (1929) Ltd. (which operates a restaurant called “Indochine”).  Finally, it was to regulate the future conduct of Combined Resources’ affairs among the 3 shareholders; for example, they agreed to ensure the Shareholders’ Agreement would be performed, to vote in a manner to give effect to the Shareholders’ Agreement and so on.

15.  The Sale Agreement and the Shareholders’ Agreement are collectively called “the 2 Agreements” below.

Issues

(a)  Contractual Claim

16.  The plaintiff’s contractual claim is based firstly on an alleged breach of a term in each of the 2 Agreements: clause 14, Sale Agreement and clause 3.1.1, Shareholders’ Agreement.  There is some slight difference in the wording of the two clauses but nothing was made out of this by the parties.  For the sake of convenience, the parties sensibly only refer to clause 3.1.1.  It provides:

“The parties agree that … the proposed ‘Va Bene’ restaurant business presently being pursued by [Va Bene Ltd.] in Shanghai will, as of the date of this Agreement, be pursued exclusively by a new company established for that purpose and in which [the plaintiff] will have not more than 30% beneficial interest (the ‘Project Company’)” (“cl 3.1.1”).

The words “the proposed ‘Va Bene’ restaurant business presently being pursued by [Va Bene Ltd.] in Shanghai” refer to the Project.  The “Project Company” referred to therein was not yet incorporated at the time of the 2 Agreements.

17.  In gist, based on cl 3.1.1, the plaintiff contends that the defendant breached the 2 Agreements by failing to pursue the Agreed Project but entered into an entirely new lease and embarked upon an entirely new project.  It is also contended that either Va Bene Ltd., or the plaintiff and the defendant, would cause the Project Company to be set up to pursue the Agreed Project: para. 10 (especially para. 10(1) to (3)), Re-Amended Statement of Claim (“Re-Amended S/C”).

18.  The plaintiff’s contentions are denied by the defendant.  The defendant further alleges that cl 3.1.1 served only the following functions:

(1)     identify the pending project which was pursued by Va Bene Ltd. up to the dates of the 2 Agreements; and

(2)     signify the parties’ common intention that the Project Company would be set up to pursue the pending project and the same would be pursued once the Project Company has been set up.

See para. 12 (especially para. 12(2) to (4)), Amended Defence (“Defence”).

19.  The plaintiff’s further contention that either Va Bene Ltd., or the plaintiff and the defendant, has the right to pursue the Agreed Project is denied: para. 12(5), Defence.  The Defence further alleges that the details of the pending project were left open.

20.  The plaintiff’s contractual claim is also based on an oral agreement allegedly made (mainly) on 13 March 2001 (“the Alleged Oral Agreement”): see para. 11, Re-Amended S/C and para. 16(c) and (d), Further and Better Particulars of the Amended Statement of Claim (“F&B P of Amended S/C”).

21.  The Alleged Oral Agreement was in effect that the defendant (whether alone or together with others) would take over the right of Tino Kwan to take part in the Agreed Project, that a Mainland partner would later be admitted to take part therein and that the defendant would continue to pursue the Agreed Project.  It is also alleged that the Alleged Oral Agreement is reflected by (in effect) cl 3.1.1: para. 16(f), F&B P of Amended S/C.

22.  On 7 June, 22 August and 3 September 2001, the defendant respectively wrote 3 letters offering the plaintiff to participate in the Project.  All 3 offers were rejected by the plaintiff:

(a)     the 7 June offer was unreasonable in that it was an offer of 20% interest in a project involving an initial budget of US$1 million, which was entirely different from the budget of the Agreed Project; the offer has to be accepted by 5 pm the following day;

(b)    the 22 August offer was unacceptable because it was an offer of 30% of the shares of a project with a budget of HK$8.4 million (30% of which amounted to HK$2.52 million); there was no chance for discussion; and

(c)     the 3 September offer was an offer that the plaintiff was to pay HK$1.65 million (30% of HK$5.5 million).  But the project still appeared to be a different one; the plaintiff would receive shares “at the same equivalent HK$ price per share as other investors”; this action must be dismissed with the plaintiff contributing to the defendant’s costs.

(b)  Equitable Claim

23.  This part of the claim is put forth on the basis that, because the Project Company which was to pursue the Project has not yet been established, the parties’ relationship was that between partners or co-promoters of a company to be formed: para. 18, Plaintiff’s opening.  As a fiduciary, the defendant was under a duty:

(a)     not to hinder or prejudice the Agreed Project;

(b)    not to prejudice the plaintiff’s interest in the Agreed Project; and

(c)     to consult the plaintiff and to allow him to take part in making any important decision relating to the Agreed Project

(para. 19 and 20, plaintiff’s opening).

24.  The defendant has wrongfully breached those duties.  For example, he assumed that because he was to hold the majority shares, he could make any change to the Agreed Project; he attempted to use Regal Well to pursue the Project; he entered into a new lease with Xintiandi; he discarded the original designs and drawings; he increased the budget amount to about HK$8 million: para. 21 to 32, plaintiff’s opening.

(c)  Defendant’s Counterclaim

25.  The defendant pleads that Regal Well should be at liberty to invest in the Project upon short notice being given.  The defendant has not stated to whom the notice should be given.

26.  The counterclaim seeks the following declaratory relief:

(a)     the defendant is entitled to procure Regal Well to invest in the pending project; and

(b)    the defendant has fully satisfied and become discharged from any obligation which he may have owed to the plaintiff to offer an interest in the pending project to the plaintiff.

Findings on Liability

27.  These will be set out under separate sub-headings below.  Findings of fact and the assessment of witnesses’ credibility will not be made under a separate heading but will be dealt with under the said sub-headings as and when it is necessary and/or appropriate to do so.

(a)  Contractual Claim

Issue 1 : Transfer of “Asset” and Plaintiff’s locus to Sue

28.  In relation to the part of the plaintiff’s claim which is based entirely on cl 3.1.1, the plaintiff contends that the Agreed Project was an asset of some kind.  The following passages in the “Plaintiff’s Closing Submissions” dated 24 September 2004 (“P’s Submissions”) say:

“The effect of [the Shareholders’ Agreement] is that [Va Bene Ltd.] assigned the asset to the parties who would be forming the new company, in particular, assigning a 30% to the P” (para. 19 thereof);

“What the D’s argument fundamentally failed to address is the question: to whom was the asset transferred?  Once it is recognised that the P in effect substantially retained his 1/3 interest …, the flaw in the D’s argument becomes obvious” (para. 28 thereof);

“As submitted above, [Va Bene Ltd.’s] investment in [the Agreed Project] … represent[s] an asset which hitherto belonged to [it] and was, with the agreement of inter alia the P, vested into those who were going to form the new project company, of which the P was to have not more than 30%” (para. 43 thereof).

Emphases in the above quoted passages are supplied by me.

29.  Hence, not only does the plaintiff put this part of his claim on the basis that the Agreed Project was an asset, right or interest of some kind (“the Asset”), it is also part of his case:

(a)     the Asset was “owned” by Va Bene Ltd. up to the time of execution of the 2 Agreements; and

(b)    the 2 Agreements have the effect of transferring the Asset to him.

30.  Whether the Asset has somehow been transferred to the plaintiff by virtue of cl 3.1.1 is purely a matter of construction.  This approach appears to be undisputed by the plaintiff at the hearing on 18 May 2005.

31.  At this point, it is useful to briefly mention the history of the trial.  The defence closed his case on 27 August 2004.  Due to insufficient time, final submissions could not commence immediately afterwards.  After discussion, it was directed (without objection from the parties) that written final submissions be lodged with court and served on the other party.  Hearing dates were tentatively fixed in case the further assistance of counsel was required after the court has perused the written final submissions.

32.  Having perused the parties’ written final submissions, I directed that there be a hearing on 18 May 2005.  Prior to that hearing, my clerk sent a letter dated 22 March 2005 to the parties the relevant parts of which read:

“In order to assist counsels’ preparation for the hearing scheduled to commence on 18 May 2005, Hon Chung J has asked me to inform counsel that further assistance is particularly needed as regards … [para. 28, 43 and 65, P’s Submissions].

It appears that para. 48 and 50(1), [P’s Submissions] are related to the said para. 43.  If in fact this is the case, Hon Chung J may need to be further assisted by the parties regarding those paragraphs as well”.

33.  At the hearing on 18 May 2005, I specifically raised the above matters with the plaintiff.  In short, the plaintiff submits that the Asset was transferred to the plaintiff pursuant to cl 3.1.1 by way of an implied term.  The plaintiff says that, because the “Project Company” referred to in cl 3.1.1 was not yet incorporated at the time of the 2 Agreements, it is necessary to imply a term to the effect that in the meantime the Asset was transferred from Va Bene Ltd. to someone who would hold it pending the incorporation of the Project Company.  This included the plaintiff.

34.  Hence, it was said in the “Note of Oral Submissions on behalf of the Plaintiff on 18.5.05” (“P’s 18.5.05 Note”):

“To whom was [the Asset] transferred?  This was the question raised in Plaintiff’s Closing Submissions paragraph 28, to which no answer was provided by the Defendant.  Since the [“Project Company”] had not been formed … the only person to whom [the Asset] could have been vested was [the plaintiff] or alternatively, [the plaintiff and the defendant] … ” (para. 4 thereof).

35.  I do not accept the above submission.  There is nothing express in cl 3.1.1 regarding a transfer of the Asset from Va Bene Ltd. to anyone other than the Project Company.  On the contrary, because the matter was expressly provided for (namely, the Asset was to be pursued exclusively by the Project Company after the execution of the 2 Agreements), the parties must have intended that any “transfer” of the Asset should be from Va Bene Ltd. to the Project Company directly.

36.  A term will be implied into a contract only when it is necessary to do so: for example, Chitty on Contracts (1999) 28^th Ed., para. 13-004.  There is no necessity to imply the term suggested by the plaintiff in the factual context of this action.  There was no reason why the Asset could not have been pursued by the Project Company after it was incorporated.

37.  Even if somehow there was a need to imply a term that the Asset was to be transferred to someone pending the incorporation of the Project Company (for instance, an urgent need to enter into a lease with Xintiandi), I do not think the plaintiff should be a candidate.  This is because cl 3.1.1 provided that he could have “no more than 30% beneficial interest” in the Project Company.  It is at least his own case whether to take part in the Project (and if so the precise extent within the 30% limit) was entirely a matter of his own choice.  In other words, he could well have decided not to take part at all.  There is no valid reason why the law should imply the Asset should be transferred to him.  Because of the defendant’s commitment to take up at least 70% of the Project (whether alone or with others), a more obvious candidate would be the defendant: see para. 39 below.

38.  P’s 18.5.05 Note also says:

“… Note that [the defendant’s] name was not even mentioned in [the 2 Agreements] … [The defendant] had not committed to take an interest, and could not be in a better position than [the plaintiff] … ” (para. 4 thereof).

39.  The above passage is difficult to comprehend.  First, it contradicts the following parts of the plaintiff’s case:

(1)     para. 11(1), Re-Amended S/C (quoted in para. 88 below);

(2)     both parties accept that the defendant would take up shares in the Project Company which have not been taken by the plaintiff (that is, to take up at least 70% of the shares): para. 18, plaintiff’s opening; and

(3)     (in refute of the defendant’s reliance on the “entire agreement clauses” in the 2 Agreements) even though it was not so stated in the 2 Agreements, both parties accept the defendant has had rights in the Project: para. 36, plaintiff’s opening.

40.  Moreover, the plaintiff’s submission above (that even the defendant has not committed to the Project) would lead to the conclusion that cl 3.1.1 was uncertain.  By virtue of the express stipulations of cl 3.1.1, the plaintiff was also not bound to take up the Project (or any shares thereof).  Consequently, the identity of the “promisor” (that is, the party who was obliged to pursue it) was uncertain at the time of the 2 Agreements (the Project Company not having been incorporated and hence not in existence yet).  If that be the case, it is highly doubtful if cl 3.1.1 can be regarded as a legally binding contractual provision.

41.  For the above reasons, I do not accept the submissions that the Asset was transferred to the plaintiff by Va Bene Ltd.  It appears the plaintiff considers that his contractual claim must involve such an ingredient: see, for example, the index to sections II and IV, P’s submissions and para. 17 to 19 and 43 to 44 thereof.  If for some reasons this should be the case, I would dismiss his contractual claim on the ground that he fails to establish an essential ingredient; alternatively, he has failed to establish he has a sufficient right or interest on which to base the claim.

42.  Based on the above analysis, because any wrongful interference with the Asset would amount to an interference with the proprietary rights or interests of the Project Company, any loss caused thereby would only be actionable by the Project Company.  But onlymembers of the Project Company may have the locus standi to bring suchan action to protect those rights or interests.  Even if the wrongdoer happens to be in control, the legal principles relating to derivative actions should be adequate to provide protection to the minorities of the Project Company.  The plaintiff has no relationship with the Project Company and should not have locus standi to do so.  An example of such proposition can be found in Johnson v. Gore Wood & Co.(a firm) [2002] 2 AC 1, 35-37, 55-56 and 62-67.

Issue 2: Construction of Cl 3.1.1

43.  But in my view, the plaintiff’s case regarding a transfer of the Asset to him may in fact be unnecessary to his contractual claim.  I will therefore consider his contractual claim assuming (in his favour) that the matters set out in sub-heading “Issue 1: Transfer of ‘Asset’ and the Plaintiff’s locus to Sue” are not essential to this part of his claim.

44.  This way of approaching his claim can be stated in the following simple terms: the plaintiff, as one of the 5 contracting parties, is entitled to sue the defendant, as another contracting party, for the breach of cl 3.1.1.  This is of course subject to his establishing his case summarised in para. 17 above (and the failure of the defence summarised in para. 18 above).

45.  As stated above, one of the disputed matters in the contractual claim is whether there was an Agreed Project, or merely a pending project.  The plaintiff contends, not only was there an Agreed Project, it was in fact expressly referred to in cl 3.1.1; the intention being that cl 3.1.1 should be a legally binding obligation capable of being relied upon, performed and enforced by the parties herein.

46.  Whether this is so is, as the parties accept, a matter of construction of cl 3.1.1.

47.  It is also common ground between the parties that a contractual term has to be construed against the relevant background circumstances: Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896, 912-3 and Jumbo King Ltd. v. Faithful Properties Ltd. (1999) 2 HKCFLR 279, 296.  The defendant emphasises the parts of the judgment which states:

“The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents … ” (p. 913D, the ICS case).

48.  On the other hand, the plaintiff emphasises the part of the ICS case which reads:

“The background … includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man … ” (p. 912H-913A, the ICS case); and

“The construction of a document is not a game with words.  It is an attempt to discover what a reasonable person would have understood the parties to mean.  And this involves having regard … to the individual words they have used .. to the agreement as a whole, the factual and legal background … and the practical objects which it was intended to achieve … ” (p. 296D, the Jumbo King case).

The difference in emphasis probably results from the parties’ different perception as to what matters favour their respective case more.

49.  The plaintiff submits that:

“… the events prior to [the 2 Agreements] give meaning to [the words “the proposed ‘Va Bene’ restaurant business presently being pursued by [Va Bene Ltd.] … ”: para. 12, plaintiff’s opening.

Considered in such light, he argues:

“… parties to [the 2 Agreements] knew full well what [it] meant … ”: para. 13, plaintiff’s opening; para. 7, P’s Submissions.

The above words therefore should have a clear meaning: para. 22, P’s Submissions.

50.  The defendant disagrees and argues that the plaintiff has substantially exaggerated the finality of the Project which in essence was “work in progress”: para. 53, defendant’s closing submissions (“D’s Submissions”).  The background or factual matrix therefore does not give a special meaning of the above words: para. 24 to 25, D’s Submissions.

51.  When cl 3.1.1 refers to the Project, the words used were:

“the proposed ‘Va Bene’ restaurant business presently being pursued by [Va Bene Ltd.] in Shanghai”.

There seems to be a contradiction within cl 3.1.1: on the one hand it speaks of a “proposed” restaurant business; on the other it speaks of the proposed business “presently being pursued”.  The word “proposed” would suggest something which was not yet agreed upon; the words “presently being pursued” would suggest otherwise.  Hence, merely looking at the wording of cl 3.1.1 per se does not enable a conclusion to be reached one way or the other.  If it had been necessary (and appropriate) to give a meaning to cl 3.1.1 based purely on its wordings, I would have found that it referred to a proposed restaurant project which was not yet finalised.

52.  Nor would an examination of the overall contents of the 2 Agreements assist much in ascertaining the parties’ intention in including cl 3.1.1 in the 2 Agreements.  As stated (in para. 11 to 14) above, neither the Sale Agreement nor the Shareholders’ Agreement as a whole was concerned with the Project.  In fact, cl 3.1.1 was probably the only term expressly referring to it.

53.  What was the background leading to the 2 Agreements, especially cl 3.1.1?  It was that the 3 directors of Va Bene Ltd. have come to an understanding (the defendant probably much prefers this word to “agreement”) regarding the location, size, layout and design and budget of a restaurant to be opened and operated by Va Bene Ltd.

54.  But any such “agreement” would have been one reached by the plaintiff, the defendant and Tino Kwan in their capacity as directors.  Indeed the way in which cl 3.1.1 was worded confirms this: see also para. 28 and 33 to 35 above.  Having so “agreed” (and assuming that there had not been any “buying-out” agreement), each of them would be under a duty as director to ensure the Project was properly carried into effect, and to the best interest of Va Bene Ltd.  In this connection, I have taken into account the finding set out in para. 84 below when considering the issues under this sub-heading.

55.  Prior to the execution of the 2 Agreements (and leaving aside the Alleged Oral Agreement for the time being), nothing was said or done by any of the 3 individuals to indicate that Va Bene Ltd. has intended to confer upon any of them the contractual right to the Agreed Project (no matter what that “right” may amount to).  An examination of the pre-contract discussions will demonstrate this.

56.  Depending on which of the accounts given by the plaintiff, the defendant and Tino Kwan is accepted, the disagreement between the parties became apparent either in February 2001 or early March 2001.  In any event, by mid-March 2001, the relationship between the parties clearly became bad.  Letters which resembled letters before action were sent by the plaintiff and the defendant respectively on 8 and 12 March 2001.  Without prejudice correspondence started on 13 March 2001.

57.  For the purpose of para. 55 above, I have examined the contemporaneous documents and the relevant parts of the witnesses’ testimony relating to the period from February 2001 to the dates of the 2 Agreements.

58.  It is common ground the parties (and Tino Kwan) verbally agreed to a “buy-out” arrangement on 14 March 2001 (according to the plaintiff) or when the parties met on 15 March 2001 (according to the defendant).  I find that, up to then, the parties’ discussions concentrated on the “buying-out” of Va Bene HK.  Things were then left to the parties’ respective solicitors to work out.

59.  Cl 3.1.1 has appeared in different forms in the draft agreements sent with the without prejudice correspondence.  In particular:

(1)	on 7 April 2001, cl 3.1(i) referred to “a new company … in which [the plaintiff] will have not less than [   ] % beneficial interest … ” (emphasis supplied);
(2)	on 8 April 2001, cl 3.1.1 referred to a minimum interest of 20% on the plaintiff’s part; and
(3)	on 9 April 2001, cl 3.1.1 again referred to a minimum interest of 20% on the plaintiff’s part.

The different versions of cl 3.1.1 shows that the plaintiff was not sure how much share in the Project he should take up.

60.  It is the plaintiff’s present argument (again leaving aside the Alleged Oral Agreement) that cl 3.1.1 is evidence of the intention set out in para. 17 and 45 above.  I do not agree.

61.  The matter can be tested by considering what the plaintiff’s proposition (to the effect that Va Bene Ltd. has intended to confer upon him some kind of contractual right to see to it that the Agreed Project would be carried into effect) would entail.

62.  First, logically it would mean the Agreed Project would have to be carried into effect “as is” (whether by the plaintiff and/or the defendant).  In other words, nothing important regarding the Agreed Project could be changed.

63.  Further, it must be noted that cl 3.1.1 was concerned with a restaurant which, once set up, would be an on-going business.  I do not understand it to be the plaintiff’s case that the Agreed Project would be something cast in stone in the sense that the restaurant business has to remain “as is” at all times after it has been set up.  Nothing can be gathered from cl 3.1.1 to evidence such a drastic contractual intention.

64.  Indeed, strangely enough, it is not even the plaintiff’s case that the Agreed Project could not be varied after the date of the 2 Agreements (but before the restaurant was set up): para. 24 (especially n. 5 thereto) and 41, P’s Submissions.  He merely contends that changes could not be unilaterally made to material aspects of the Agreed Project without consultation (with him) or his participation: para. 24 (especially n. 5 thereto) and 41, P’s Submissions.  This is difficult to understand because, if it is the plaintiff’s case that there was an Agreed Project, it would follow the performance of cl 3.1.1 would simply mean the carrying into effect of the Agreed Project as agreed.

65.  By reason of the plaintiff’s case set out in para. 64 above, the matters set out in para. 62 above cannot be part of the plaintiff’s case (even though they should be as a matter of logic).  Hence, to accept the plaintiff’s contention set out in para. 64 above would effectively mean that cl 3.1.1 should be construed as a contractual term which was not concerned with a substantive right but a mere procedural one, namely, a right to be consulted about important matters of the Project.

66.  Nothing in the wording of cl 3.1.1, whether read in isolation or in the context of the whole of the 2 Agreements, would justify such a construction.  Likewise, neither “the factual and legal background” nor “the practical objects” (to use the phrases used in the Jumbo King case) of cl 3.1.1 would justify such meaning.  The findings set out in para. 84 and 85 below have also been taken into account here.

67.  Finally, the part of cl 3.1.1 which provides “a new company … in which [the plaintiff] will have not more than 30% beneficial interest” also sheds light on this issue.  This part of cl 3.1.1 clearly intended the plaintiff could reserve to himself the choice of whether to take part in the Project (and if so the extent of participation up to 30%).  There may be suggestions in the plaintiff’s testimony that he in fact intended to be committed to taking up 30% of the Project.  But such assertions are inadmissible : the ICS case, p. 912. 

68.  There is no evidence regarding the precise reason for his reservation.  I infer from this reservation that the plaintiff considered there was something about the Project which he needed to think about.  In the factual context of this action, that could only be one or more of the following:

(a)   some aspects of the Project itself, for instance, its location, size, layout and design and/or budget;

(b)   whether to take part in a business venture with the defendant who, on the plaintiff’s case, was someone he no longer trusted; and

(c)   whether to take part in a business venture the exact identity of the investor(s) of which was unknown.

69.  The reservation could not have been due to (a) above because, according to the plaintiff, the Project was already agreed.  Hence, the only matters which he needed to consider would be those set out in sub-para. (b) and/or (c) above.  Both matters are concerned with the identity of the investor(s).  The plaintiff also testified to the effect he was not concerned with sub-para. (b) above.  Accordingly, it can be inferred that the plaintiff considered sub-para. (c) above to be important (at least sufficiently important to require his further consideration before committing himself to the Project).  This would reinforce the conclusion that cl 3.1.1 was not intended to refer to the Project as if it were something conclusively agreed between the plaintiff and the defendant.

70.  For the above reasons, I reject the construction given to cl 3.1.1 by the plaintiff and accept that given to it by the defendant.

71.  I should add for completeness that the same (or at least a similar) conclusion can be reached by considering whether the parties intended by cl 3.1.1 to create legal relationship: Chitty, para. 2-145 to 2-160.  This alternative approach very probably would involve an analysis of the same matters which are required for construing cl 3.1.1: Chitty, para. 2-148 (especially text to nn. 68 and 74 to 75).  If it were necessary to do so, I would have concluded that there was no such intention bearing in mind the wording of cl 3.1.1 and the circumstances under which it was inserted into the 2 Agreements.  In this connection, apart from the matters already set out under this sub-heading, I also bear in mind:

(1)     cl 3.1.1 confers on the plaintiff too wide a discretion as regards his “obligation” to participate in the Project: Chitty, para. 2-159 and 2-160;

(2)     alternatively, the plaintiff’s said “obligation” under cl 3.1.1 is too vague: Chitty, para. 2-165.

I also regard the following background to be important to this issue, namely, when the parties (and Tino Kwan) arrived at an “understanding” (using a word preferred by the defendant) or an “agreement” (using a word preferred by the plaintiff) as regards the Project (see the next sub-heading for more details), they did so as directors of Va Bene Ltd. and not as parties who were contemplating a new joint venture in their personal capacity (even though the directors have discussed the setting up of a new company in Shanghai for such purpose): see para. 54 above and 84 below.

Issue 3: Was There an Agreed Project?

72.  This part of the plaintiff’s case is based on agreements allegedly reached by the parties in relation to the following aspects of the Project:

(1)     location, size and layout of the restaurant;

(2)     its concept and design; and

(3)     its budget.

73.  The defendant contends, on the other hand, there was no agreement regarding these aspects; merely some kind of understanding among the directors of Va Bene Ltd.

74.  Quite a few matters are undisputed.  Those which are more relevant to this part of the plaintiff’s case are:

(a)	discussion about the Project commenced at directors’ meetings of Va Bene Ltd. from September 2000 onwards;
(b)	by late 2000, the directors’ understanding was that there would be features to remind customers that the restaurant in Shanghai was connected to Va Bene HK;
(c)	an interior designer, GIL, was engaged and GIL produced a revised plan for design in November 2000;
(d)	a Molto Bene Ltd. (“Molto Bene”)was chosen to sign a letter of intent with the developer of Xintiandi in January 2001 and a deposit was paid to the developer;
(e)	from about December 2000 to about February 2001, directors of Va Bene Ltd. discussed the budget of the Project;
(f)	GIL sent confirmed layout plan to Xintiandi in February 2001; and
(g)	Tino Kwan signed a letter of intent and quotation dated 13  March 2001 with Welland Contracting Ltd. (also known as Shanghai East China Constructional Development & Design Inc.) (“Welland”) appointing them as general contractor.

Location, Size and Layout

75.  The plaintiff relies on the above undisputed facts (as well as other facts which are disputed).  Quite some time of the trial has been spent in taking the witnesses through the contemporaneous documents relating to this aspect.  The main purpose is to demonstrate that the parties have agreed on the items in question here.

76.  In support of his case that there was no agreement, the defendant, on the other hand, relies on various matters including the following:

(a)	the letter of intent signed with the developer was terminated by notice in May 2001;
(b)	the developer has not completed the erection of the staircase inside the proposed premises;
(c)	vacant possession of the proposed premises has not been delivered;
(d)	no formal lease was signed by the plaintiff on 13 March 2001 despite authority to do so has been given to him;
(e)	the site was not handed over to Molto Bene;
(f)	the further rent deposit has not been paid; and
(g)	decoration work at the site has stopped in March 2001 due to the disagreement between the parties.  Welland has not performed any work as general contractor.

Without going into the details, the above matters are disputed by the plaintiff, who refers to various pieces of evidence (testamentary and documentary) to refute the defendant’s above argument.

Concept and Design

77.  The plaintiff’s approach here is similar to that under the sub-heading “Location, Size and Layout”.

78.  Again, the defendant launched a similar attack on this part of the plaintiff’s case:

(1)     it was not resolved the Project should be an exact replica of Va Bene HK;

(2)     managerial and other staff has not been recruited;

(3)     the quotation for the mural paintings and special paint walls inside the proposed premises was not accepted;

(4)     entertainment element has not been excluded;

(5)     the kitchen contractor has not been engaged;

(6)     the interior designer’s design was not finalised and agreed;

(7)     there was dissatisfaction about the work of GIL and there was discrepancy between the measurements in the plans and at the site;

(8)     the design for staff uniform has not been prepared; and

(9)     staff who were to work in Shanghai have not been recruited yet.

The plaintiff also disagrees that these matters were unresolved.

Budget

79.  The issues here are similar.  The dispute between the parties regarding this aspect involves numerous matters including:

(a)	whether the discussion at the directors’ meeting on 5 February 2001 relating to RMB6.5 million was only a preliminary target;
(b)	no inventory of the items required has been obtained before 5  February 2001.  The items listed in February 2001 were based on the costs for renovating Benissimo restaurant in Hong Kong;
(c)	broad-brush reductions to the list were made on 5 February 2001;
(d)	whether the plaintiff’s evidence that RMB6.5 (or 6.6) million (equal to about HK$6.1 million) was further reduced to HK$5.5 million is inherently incredible.  The reference to HK$6 million in a proposal letter to new investor is said (by the defendant) to evidence the above;
(e)	whether Tino Kwan’s testimony that he was confident the restaurant could be set up for HK$5.5 million has to be looked at in the proper context.  The defendant alleges he looked at it from a purely construction point of view;
(f)	a minimum expenditure of RMB4.4 million was required by the letter of intent signed with Xintiandi leaving only a balance of about HK$1.5 million (assuming the budget were fixed at HK$5.5 million); and
(g)	whether as at 12 April 2001, the incurred, committed or anticipated expenses were more than HK$5.5 million.

80.  I find that, however much one wants to contend to the contrary, a budget is by definition an estimate.  For good reasons or bad, some people may be more confident about its accuracy than others.  The budget may even ultimately turn out to be an accurate estimate.  But at the time when the budget is fixed, it has that inherently quality.

81.  In this action, I find that the real difference at trial between the testimony of plaintiff (and his witness Tino Kwan) on the one part and that of the defendant on the other, is the degree of confidence in the accuracy of the budget fixed before the parties’ relationship broke down.  I do not find the defendant to be untruthful about this matter.  But even if he had not been truthful and was as confident as the plaintiff about it at the time, I do not find it can properly be concluded that some kind of binding agreement has been reached between them regarding this matter.  In so finding, I find as facts, and take into account:

(1)     the context in which the budget was “agreed” to: see para. 54 above and 84 below;

(2)     the Project has not progressed to an advanced stage by early March 2001 (after which there was no real discussion about this aspect): see para. 56 above; and

(3)     the parties were totally inexperienced in opening a restaurant in Shanghai (even though Tino Kwan has some experience about lighting work there and might even have heard from others about the setting up of restaurants there).

Other Matters

82.  I do not propose to set out various other matters in the parties’ closing submissions relating to whether there was an Agreed Project.  Suffice it to say I have considered them in reaching the conclusion below.

Conclusion on Agreed Project

83.  I begin by observing that it is unnecessary to set out or discuss in detail the matters referred to in the parties’ respective closing submissions relating to the sub-headings from “Location, Size and Layout” to “Budget”.  Without disrespect to the parties (and counsel), I find the exercise to be inappropriate for present purpose because to do so would be to immerse oneself in unnecessary details while failing to consider the overall context.  I must point out that not setting them out or discussing them in detail does not mean I have not considered them in detail.

84.  I find that, whether one prefers to use the word “agreement” or “understanding” with regard to those matters, the crucial fact remains (and I so find) that they were “agreed” to by the parties (and Tino Kwan) while they were directors of Va Bene Ltd, and for the purpose of furthering a new business plan which “belonged to” Va Bene Ltd.  Prior to the time of the 2 Agreements, these matters were not “agreed” to in contemplation that the parties would enter into a new business venture in their own right (whether together with yet other “partners”).  Whenever words such as “agreement” or “agreed to” are used in this judgment, they have to be understood in that factual context.

85.  With this important background fact in mind, I disagree with the plaintiff’s contention that the “agreement” should give the phrase “the proposed ‘Va Bene’ restaurant business” a meaning different from what appears on its face, with the result that cl 3.1.1 should impose an enforceable obligation on the defendant’s part to carry the Project into effect “as agreed”.  Rather, I agree with the defendant that, insofar as the plaintiff so contends, he has exaggerated the finality of the Project.  Accordingly, I agree with the defendant that the Project was in substance “work in progress”.  In other words, I find that the Project was merely a pending project, and not an Agreed Project.  To the extent the testimony of the plaintiff and Tino Kwan contradicts this finding, I reject it.  To the extent the defendant’s testimony is consistent with this finding, I find it to be truthful.

Issue 4: The Alleged Oral Agreement

86.  The plaintiff says at para. 52, P’s Submissions:

“When this case was opened for the P, we have already stated that the P’s case does not depend on establishing an oral agreement”.

87.  The defendant describes this as a change of stance which is inconsistent with the plaintiff’s pleading and opening: para. 19, defendant’s supplemental closing submissions (“D’s Supp Submissions”).  This is denied by the plaintiff who says the case was opened on the same basis: para. 25, plaintiff’s supplemental closing submissions (“P’s Supp Submissions”).

88.  The plaintiff’s pleaded case regarding the Alleged Oral Agreement is:

“Further … the Plaintiff and the Defendant orally agreed that …

… [Tino Kwan’s] right or entitlement to take up a beneficial interest in [the Project] would be taken over by the Defendant or the Defendant with new partners …

… A local mainland Chinese partner … would later be admitted into [the Project] and … he would be allocated a small equity in the same out of the Defendant’s interests …

… the Defendant would …

… Go up to Shanghai … to put in train all steps necessary to pursue [the Project] …

… Use his best endeavours to negotiate with and secure from the Landlord … an extension of the date for the opening of [the Project] … ”

(Para. 11, Re-Amended S/C (which is the same as para. 11, Amended Statement of Claim)).

89.  The above plea was elaborated in para. 16, F&B P of Amended S/C which reads:

“[The Alleged Oral Agreement] was made between the Plaintiff and the Defendant in their personal capacities, the effect of which is set out in paragraphs 10(1), (2) and (3) of the Amended Statement of Claim” (emphasis supplied).

90.  Para. 10(1) to 10(3), Amended Statement of Claim is the same as para. 10(1) to 10(3), Re-Amended S/C.  They plead:

“(1)  Either [Va Bene Ltd.] or the Plaintiff and the Defendant would cause a new project company to be established to carry on [the Project] (‘the Project Company’);

 (2)  The ‘Va Bene’ restaurant business [that is, the Project] ‘presently being pursued by [Va Bene Ltd.]’ within the meaning of [the 2 Agreements] was to be carried on by the Project Company to be established as aforesaid; and

 (3) The said ‘Va Bene’ restaurant business [that is, the Project] ‘presently being pursued by [Va Bene Ltd.]’ referred to the project that had been promoted and/or implemented by [Va Bene Ltd.] and its directors as defined by the various acts which had been done as at the date of [the 2 Agreements], such acts having been set out in the preceding paragraph”.

91.  It can seen that these pleas are quite different from what was pleaded in para. 11, Re-Amended S/C (see above).  Judging from para. 54, P’s Submissions (which in effect refer only to para. 11, Re-Amended S/C), it is likely the reference to para. 10(1) to 10(3), Amended Statement of Claim was in fact a reference to para. 11 thereof.

92.  The plaintiff’s case is that the Alleged Oral Agreement was made “on various dates in March [2001] but mainly on or about 13 March 2001”: para. 16(c), F&B P of Amended S/C.  In relation to 13 March 2001, it was made at a meeting held at the plaintiff’s chambers.

93.  I agree with the defendant’s submissions regarding the Alleged Oral Agreement (which will not be repeated in full below) and reject this part of the plaintiff’s case: see especially para. 21, D’s Supp Submissions.

94.  First, it was only on either 14 or 15 March 2001 (depending on the versions given by the plaintiff or the defendant) that it was agreed Va Bene HK was to be bought from the plaintiff and Tino Kwan by the defendant.  Before then, the plaintiff and Tino Kwan could well turn out to be the purchasers of Va Bene HK.

95.  Secondly, the terms of the 2 Agreements are full and detailed, but they do not expressly set out the terms of the Alleged Oral Agreement pleaded in para. 11, Re-Amended S/C.  No valid reason has been given for such omission.

96.  The time of the alleged 13 March 2001 meeting was too proximate to the time of another meeting between the defendant and his solicitors for the defendant to be able to meet the plaintiff at the alleged time.  The defendant solicitor testified to such effect and was not cross-examined about this.  I find him to be truthful.

97.  The Alleged Oral Agreement was only first mentioned in the solicitors’ letter dated 7 June 2001.  The terms set out in the said letter were different from some of those set out in para. 11, Re-Amended S/C. I also note, among other things, the said letter stated that the plaintiff was committed to taking up 30% of the shares in the Project Company; this is different from cl 3.1.1.

98.  During the course of the without prejudice correspondence (from about 13 March 2001 to the time before the execution of the 2 Agreements), cl 3.1.1 has appeared in different forms: see para. 59 above.  No valid explanation has been given for this.

99.  The defendant also relies on cl 17.2, the Sale Agreement and cl 15.4, 15.5 and 15.10, the Shareholders’ Agreement.  They respectively provide:

“This Agreement … represents the entire understanding, and constitutes the whole agreement, in relation to its subject matter and supersedes any previous agreement between the parties with respect thereto and … excludes any warranty, condition or other undertaking implied at law or by custom”;

“This Agreement represents the entire understanding, and constitutes the whole agreement, in relation to its subject matter and supersedes any previous agreement between the parties with respect thereto and … excludes any warranty, condition or other undertaking implied at law or by custom”;

“Each party confirms that, except as provided in this Agreement, no party has relied on any representation or warranty or undertaking which is not contained in this Agreement and … no party shall be under any liability or shall have any remedy in respect of misrepresentation or untrue statement unless and to the extent that a claim lies under this Agreement”;

“No variation to this Agreement shall be effective unless made in writing and signed by or on behalf of the parties”.

These clauses are called “entire agreement clauses” by the defendant.  I will do the same for convenience.

100.  By virtue of my rejection of the Alleged Oral Agreement, it is strictly unnecessary to consider whether, in view of the entire agreement clauses, the Alleged Oral Agreement has been superseded by the 2 Agreements.  If it had been necessary to do so, I would have agreed with the defendant and found in his favour regarding this point.

(b)  Claim in Equity

101.  It must be noted that by this stage, I have already rejected the plaintiff’s contractual claim.

102.  At one stage it appears the gist of this part of the plaintiff’s claim is set out in para. 65, P’s Submissions:

“The D’s conduct in entering into an entirely new lease ([for a larger area than that agreed]) and pursuing a substantially different design and more expensive project made it impossible for the P to realise his 30% beneficial interest in [the Agreed Project] which he was confirmed to have under [cl 3.1.1]” (emphasis supplied).

103.  I have already concluded that, if the Project was an Asset (called “the Asset” from para. 29 above onwards), the Asset belonged to Va Bene Ltd. and was never transferred to or devolved upon the plaintiff: para. 35 and 41 above.  I have also found that the plaintiff has exaggerated the finality of the Project which in substance was “work in progress”: para. 85 above.  There are also findings that the discussions prior to 12 April 2001 were made by the parties (and Tino Kwan) as directors of Va Bene Ltd. (para. 54 and 84 above) and that, in light of cl 3.1.1, it was clear the plaintiff has reserved to himself the option of deciding whether to participate in the Project (and if so, the extent of participation).

104.  It is unclear whether the plaintiff contends this part of his claim still stands in light of the above findings.  Even if he does, I do not consider it should stand.  Assuming in the plaintiff’s favour that somehow it does, I am still not satisfied that this part of his claim is made out for the following reasons.  In this connection, I proceed on the basis the plaintiff’s submissions set out in para. 76 to 100(4), P’s Submissions (insofar as they concern changes made by the defendant to the Project) are correct.

105.  The authorities relied on by the plaintiff include:

(a)     United Dominions Corporation Ltd. v. Brian Pty. Ltd. (1985) 157 CLR 1, 11-12;

(b)    Fraser Edminston Pty. Ltd. v. AGT (Qld) Pty. Ltd. [1986] 2 Qd R 1, 9;

(c)     Dickie v. Torbay Pharmacy (1986) Ltd. [1995] 3 NZLR 429, 439-440;

(d)    Gower and Davies Principles of Modern Company Law (2003) 7^th Ed., pp. 320, 416-422;

(e)     Barber’s Case (1877) 5 Ch D 963, 967-8;

(f)     Re Portuguese Consolidated Copper Mines Ltd (1889) 42 Ch D 160;

(e)     Lindley and Banks on Partnership (2002) 18^th Ed., para. 15-08;

(g)     Const v. Harris (1824) Turn & R 496, 524;

(h)     Blisset v. Daniel (1853) 10 Hare 493; and

(i)      Wall v. London and Northern Assets Corporation [1898] 2 Ch 469.

106.  The authorities relied upon by the defendant include:

(1)     Hospital Products Ltd. v. United States Surgical Corp (1984) 156 CLR 41, 96-7;

(2)     Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145, 206;

(3)     Kao Lee & Yip v. Koo Hoi Yan and Others [2003] 3 HKLRD 296, 313;

(4)     Kelly v. Cooper [1993] AC 205, 214-5; and

(5)     Hoy’s Seafood and Bar Ltd. v. Hoy and Others, unrep., 25 July 1994 Vic Lexis 1087.

107.  As stated above, I assume in the plaintiff’s favour that somehow this part of his claim still stands despite my earlier findings in relation to his contractual claim.  I do not consider it necessary to go into the details but to quote the observation of Ma J (as he then was) in Kao Lee & Yip (para. 106(3) above):

“Generalities aside, it is important to recognise that how these duties are applied to the facts in any given case can only be determined by reference to the nature and character of the particular relationship in question … ” (p. 313).

108.  Here, the parties’ relationship was in short that the Project was “work in progress” in which the plaintiff may opt to have an interest of not more than 30%.  If there is any fiduciary duty on the defendant’s part, it would be not to render it impossible for the plaintiff to so participate.  It must be noted here I am referring to his participation in the pending project, not the Agreed Project.  The defendant’s offers to the plaintiff have been referred to in para. 22 above.  In the factual context (as found above), I do not consider them to be unfair or unreasonable offers.

109.  To the extent of the duty found in para. 108 above, I can comprehend para. 65, P’s Submissions (quoted in para. 102 above).  However, at the hearing on 18 May 2005, the plaintiff resiled from that position and contended that it is unnecessary for him to put forth such a case.  This contention was made upon my query as to whether the plaintiff’s case that

“The D’s conduct … made it impossible for the P to realise his 30% beneficial interest … ”

was advanced on the basis of the plaintiff’s lack of financial or other capability.  The query was raised because I could not find any evidence of such impossibility and the plaintiff did not argue that there was such evidence: see, for example, the plaintiff’s cross-examination (Day 4, pp. 81:11 to 86:4 and Day 5, pp. 21:12 to 32:18).

110.  The plaintiff submits that there was a fiduciary duty to consult: para. 68, P’s Submissions.  Insofar as the plaintiff is saying the duty is self-standing, I do not accept the submission bearing in mind the factual context of this case (as I have found above).  Insofar as the duty to consult is related to a case that the defendant should not render the Project beyond the plaintiff’s ability (financial or otherwise) to participate, there is simply no factual basis for suggesting this has happened: see the discussion in para. 108 and 109 above.

111.  For the above reasons, this part of the plaintiff’s claim is also rejected.

(c)  Conclusion on Liability

112.  To sum up, the plaintiff’s claim is dismissed.

(d)  Defendant’s Counterclaim

113.  Having dismissed the plaintiff’s claim, and having considered the circumstances set out in the D’s Submissions (see para. 151 to 152 thereof), I will make an order in terms of the declaratory relief prayed for in his counterclaim.

Quantum and Relief

114.  Having concluded in short that the plaintiff’s claim has not been established, it is strictly unnecessary to deal with this aspect.

115.  The relief sought includes the following:

(1)     injunction;

(2)     account for profits or, at the plaintiff’s option, damages (equitable damages) for breach of fiduciary duty; and

(3)     damages for the loss of 30% interest in the Project Company.

116.  The kind of relief which needs to be considered will depend on many factors; for example, whether there are any facts to justify the grant of such kind of relief.

117.  In view that I have found against the plaintiff on the factual basis on which he relies to put forth his claim, it will be too speculative an exercise to deal with the question of relief.  I shall refrain from doing so.  But if somehow it were necessary to do so, I find that the defendant’s submissions relating to this part to be of substance and highly likely to be correct.

Other Matters

118.  To avoid doubt, I should also mention several matters.

119.  Although not all the points made by the parties (whether set out in their respective skeleton submissions or verbally during the hearing) have been expressly referred to above, I have considered them.

120.  Without prejudice to the generality of the above, although I have not dealt with the following points, I have considered them before reaching the conclusions above:

(a)     the allegation that the defendant wrongfully used Regal Well to pursue the Project: para. 25 to 28, plaintiff’s opening;

(b)    the allegation that the defendant wrongfully procured Regal Well to use the name “Va Bene”: para. 31, plaintiff’s opening; and

(c)     the allegation that the defendant thereby procured a breach of contract by Regal Well: para. 31, plaintiff’s opening;

121.  Insofar as it is necessary to assess the witnesses’ credibility in order to make a finding of fact, the tests adopted for such assessment are as those stated in the judgment of Star Glory Investment Ltd. v. Kai Tuo (H.K.) Technologies Co. Ltd. and Others, HCA 3523/2002:

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task).  I consider the following to be the appropriate test to adopt:

“There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:
(a)	whether that part of his testimony is inherently plausible or implausible; and
(b)	whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).
Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility.  Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony.  For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest”.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard HCA 814/2002 (para. 13))” (para. 12).

Reliability of the witnesses, being the ability to accurately observe, recall and recount matters, is not involved in the factual context of this action.

Costs Order Nisi

122.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action be paid by the plaintiff to the defendant to be taxed if not agreed.