LAI KIM MING JOSEPH t/a JOE LINES CO v. MACROTECH SECURITY & MANAGEMENT SERVICES LTD

DCCJ 3392/2014 & DCCJ 3647/2014
(Heard Together)

[2020] HKDC 750

DCCJ 3392/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3392 OF 2014

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BETWEEN

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AND

DCCJ 3647/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3647 OF 2014

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BETWEEN

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(Heard together by order of Master D. Ho given on 8 May 2015)

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JUDGMENT

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Background

1.  The plaintiff and the defendant were in a business relationship, the exact nature of which was vigorously contested in these proceedings, during the period between September 2009 and August 2014.  The plaintiff claimed that he initiated the termination of the business relationship, with the defendant’s agreement, became effective from 1 September 2014.  The defendant, in contrast, claimed that it was the defendant who terminated the subject agreement as a result of the plaintiff’s unilateral breach.

2.  After the business relationship had come to an end, and in these proceedings, the plaintiff claimed against the defendant for various sums of money which allegedly arose from the express and the implied terms in various agreements entered into between him and Mr Leung Ka Tat (“Mr Leung”) on behalf of the defendant.  On the other hand, the defendant, whilst denying all the plaintiff’s claims, counterclaimed against the plaintiff for certain sums of money owed to the defendant as well as damages arising from the plaintiff’s alleged breaches of fiduciary duties as an agent of the defendant.

3.  Given that the disputes in both DCCJ 3392/2014 and DCCJ 3647/2014 arose from the same dealings between the parties in the same period of time, they were ordered to be heard together^[1].

4.  In summary, in DCCJ 3392/2014, the plaintiff claimed for HK$660,000 arising from 22 unpaid invoices for additional administrative work rendered by the plaintiff to the defendant.  The defendant denied that the plaintiff was entitled to that sum and counterclaimed for the settlement of a loan of HK$100,000 which was advanced to the plaintiff but had never been repaid.  The non-repayment of that HK$100,000 loan was not in dispute in these proceedings and the parties agreed that it could be set off against any relief to be granted to the plaintiff.  Both parties also claimed for interest and costs.

5.  In brief, in DCCJ 3647/2014, the plaintiff claimed for (a) the plaintiff’s share of profits for July and August 2014; (b) the plaintiff’s share of contribution towards the acquisition of various properties in the course of the business during the commercial relationship; and (c) half share of the contribution from the plaintiff which was set aside monthly between January and June 2014 for payment of the staff year-end bonus.  The defendant denied that the plaintiff was entitled to any of those sums claimed and counterclaimed for (a) repayment of the plaintiff’s share of profits for May and June 2014 wrongfully paid to the plaintiff by the defendant; and (b) damages arising from the plaintiff’s breaches of fiduciary duties by establishing his own security company in competition with the defendant, soliciting the defendant’s staff to leave employment with the defendant and soliciting business from the defendant’s clients. Both parties also claimed for interest and costs.

Undisputed Facts

6.  I start from the undisputed facts which both parties accepted or at least did not take issue with.

7.  Before entering into the business relationship, subject of these proceedings, both the plaintiff and Mr Leung (who later caused the defendant to be incorporated) were former police officers.  They separately left the police force at different times for employment in the security service industry.  The plaintiff met the defendant in about 2000. In about May 2004, the plaintiff was employed by G4S, an international security services group, as Operations Manager.  In the same year, Mr Leung who was originally also working in G4S left his employment.   In 2008, the plaintiff met Mr Leung again in a company event at a hotel, when Mr Leung was at that time under the employment of a courier service company, DHL.

8.  In about April 2009 Mr Leung invited the plaintiff to cooperate in business and join the defendant.  The plaintiff subsequently agreed.  Between 1 September 2009 and 31 August 2014, the plaintiff and the defendant cooperated in the provision of security and security-related services to their corporate customers under the name of the defendant.

9.  As at 1 September 2009, the shareholders and the directors of the defendant were Mr Leung’s wife (85% shareholding), Mr Leung’s younger brother (5% shareholding) and a Mr Lam^[2]. Mr Leung was at the time still under the employment with DHL as security manager^[3]. Later, Mr Leung has become a director of the defendant since 1 December 2012^[4] and a shareholder of the defendant since February 2013^[5].

10.  At all material times, the defendant had a valid licence from and was regulated by the Security and Guarding Services Industry Authority, which was necessary to conduct its business^[6].

11.  On 1 September 2009, the plaintiff and Mr Leung on behalf of the defendant entered into an oral agreement, evidenced by a “Security Consultancy Service Agreement” signed by both parties (“the 1^st Agreement”)^[7].  It was a home-made document, i.e. not drafted with the benefit of a legal advice^[8].  Pursuant to the 1^st Agreement, the defendant established 2 teams, Team A to be managed by the defendant and Team B to be managed by the plaintiff.  Team A and Team B had their respective clients.  The 1^st Agreement also provided that the plaintiff would be remunerated at 50% of the profits made by Team B calculated by a certain formula, payable by the defendant to the plaintiff monthly.  The exact terms of the 1^st Agreement will be set out in detail in my analysis below.

12.  In September 2009, when the plaintiff joined the defendant, the defendant’s staff comprised of Mr Leung’s wife, Mr Leung’s younger brother and another employee.  None of them had experience in the field of security-related services and they dealt with administrative aspects of the defendant’s business^[9].

13.  On 30 March 2010, the plaintiff using his trading name “Joe Lines Company” and Mr Leung on behalf of the defendant entered into an oral agreement as evidenced by a “Security Consultancy Service Agreement” dated 1 April 2010 and signed by both parties (“the 2^nd Agreement”)^[10]. The terms of the 2^nd Agreement were in substance identical to those of the 1^st Agreement, hence when it took effect on 1 April 2010, the parties continued their cooperation under the defendant’s name in the same manner as before.

14.  On 20 March 2013, at the plaintiff’s request, the defendant agreed to advance to the plaintiff an interest-free loan of HK$100,000, which was paid to the plaintiff’s ex-wife^[11].

15.  On 23 May 2014, the plaintiff changed his company’s name of “Joe Lines Limited” to “JL Security Limited” which received its security service company licence on 1 August 2014^[12].

16.  On 25 July 2014, in a meeting and later evidenced by an email, the plaintiff informed Mr Leung of the defendant that their business relationship under the 2^nd Agreement was to terminate, effective from 1 September 2014.  It was stated in the e-mail, among other things, that all the existing Team B clients, save two, would leave the defendant and engage the service of JL Security Limited instead^[13].

The Plaintiff’s Case

17.  The crux of the plaintiff’s case was that the parties’ business relationship between 1 September 2009 and 31 August 2014 was one of contractual joint venture.  The plaintiff claimed that it was Mr Leung of the defendant who invited the plaintiff to join the defendant as a party to a joint venture in early 2009, knowing that the plaintiff had sound knowledge and experience as well as good network with security guards and clients in the field of private security services^[14].

18.  According to the plaintiff, the arrangements of the joint venture pursuant to the 1^st and the 2^nd Agreements (collectively as “the Agreements”) included: -

(a) Under the defendant’s name, Mr Leung sourced clients for Team A while the plaintiff secured clients for Team B.

(b) Despite the position stipulated to be “Manager” in the 1^st Agreement, the plaintiff enjoyed complete discretion over the operation of Team B and earned his own profits from the contracts he secured.

(c) The plaintiff would not do any work for Team A.

(d) The plaintiff shared overhead expenses with the defendant which were calculated with reference to the proportion of the monthly income of Team B to the total monthly income of both Team A and Team B.

(e) The plaintiff was entitled to 50% of the profits earned by Team B minus the direct overhead expenses incurred by the Team B contracts and the “agreed total overhead cost”, as set out in the 1^st Agreement[15].

19.  In September 2009, the plaintiff started working under the defendant’s name.  At that time Mr Leung was still employed by DHL as a security manager so he did not spend much time working for Team A of the defendant. In September 2009, according to the plaintiff, the defendant had only 3 major customers with about HK$1 million gross monthly revenue.  With the plaintiff’s efforts in securing contracts for Team B, by March 2010, the defendant gained 3 more major clients^[16].

20.  In about March 2010, as the plaintiff wished to take tax advantages by trading as a sole proprietor, he and Mr Leung agreed to enter into the 2^nd Agreement, whose terms were identical to those of the 1^st Agreement, save that the plaintiff’s name was replaced by “Joe Lines Company”^[17].

21.  In about February 2010, Mr Leung asked the plaintiff to assist the defendant with the annual renewal application for the defendant’s security licence with the police.  The plaintiff acceded to the request because he was familiar with such administrative work and wanted to maintain a good working relationship with the defendant.  Since about August 2010, Mr Leung had asked the plaintiff to help with the follow-up work on Team A contracts on Mr Leung’s behalf.  The plaintiff claimed to have assisted with Team A contracts extensively, including drafting proposals, negotiating prices and even signing agreements for Team A.  The plaintiff also helped handling personal injury claims arising from Team A contracts.  Again, the plaintiff did so because he wanted to maintain a good relationship with Mr Leung of the defendant^[18].

22.  By early 2012, the plaintiff had been doing a lot of the administrative work for Team A, as well as running Team B at the same time.  The plaintiff claimed that Mr Leung raised the idea of recruiting a general manager to deal with the administrative work for Team A as well as some of the headquarters matters and suggested a salary of HK$30,000 for such a position.  Mr Leung suggested to the plaintiff that he could take up the role of a general manager and received that salary, until a suitable person was found.  The plaintiff agreed.  Hence, from April 2012 onwards, the plaintiff had been issuing monthly invoices of HK$30,000 each month for his additional services rendered during the previous month as general manager of the defendant[19].

23.  In January 2014, the plaintiff incorporated “Joe Lines Limited” in order to take tax advantages.  Therefore, from that date on, the plaintiff had issued his monthly invoices of HK$30,000 in the name of “Joe Lines Limited” to the defendant between January and April 2014.  The plaintiff admitted that these 4 invoices had been settled.  The 22 invoices issued between April 2012 and January 2014 (HK$30,000 x 22 = HK$660,000) were, however, not settled and formed the basis of the plaintiff’s claim in DCCJ 3392/2014.

24.  Between December 2012 and April 2014, the relationship between the plaintiff and Mr Leung of the defendant gradually deteriorated.  Conflicts between the plaintiff and Mr Leung arose from their disagreement over the sharing of expenses that the plaintiff felt unrelated to the work of Team B which reduced his share of profits as well as Mr Leung’s insistence on booking under Team A a major client that Team B secured[20].  The plaintiff raised his protests to Mr Leung in various emails.

25.  In about early May 2014 the plaintiff decided to leave the defendant and began to consider setting up his own business.  Between May and July 2014, the plaintiff continued to work with Team B of the defendant but at the same time, he started looking for rental premises and talked to some staff members of the defendant, most of whom joined the defendant because of their previous contacts with the plaintiff.  According to the plaintiff, the staff members whom he had talked to were supportive of the plaintiff’s intended business and stated their intention of leaving the defendant when the plaintiff did.

26.  On 23 May 2014, “Joe Lines Limited” changed its name to “JL Security Limited”.  The plaintiff applied for a security service company licence on behalf of JL Security Limited in early June 2014 and received the licence on 1 August 2014, which was much earlier than the plaintiff expected[21].

27.  On 25 July 2014, at a meeting in the afternoon, the plaintiff told Mr Leung on behalf of the defendant that he would leave the defendant on 31 August 2014.  The plaintiff also told Mr Leung which of the Team B staff members would be leaving the defendant and that the plaintiff would take the clients served by Team B with him to his new business, save two of them.  According to the plaintiff, he and Mr Leung had reached consensus on various matters at the end of the meeting in order to part ways amicably (“the Termination Agreement”)[22].  On the same day, in the evening, the plaintiff sent an email to Mr Leung to summarise what they had discussed at the meeting[23]. What the parties agreed to in the Termination Agreement formed the basis of one of the plaintiff’s claims in DCCJ 3647/2014.

28.  In DCCJ 3647/2014, the plaintiff claimed that: -

(a) The Termination Agreement provided that the defendant should pay the plaintiff’s share of profits which Team B earned during the months of July and August 2014 and that the defendant could deduct the outstanding amount of the loan of HK$100,000 from the plaintiff’s share of profits^[24].

(b) Pursuant to clause 3 under the Agreements, the plaintiff had contributed to the acquisition of various properties during the subsistence of the joint venture, namely, a vehicle, staff uniform and equipment such as computers and walkie-talkies (“the Properties”);  as such, there was an implied term under the Agreements that upon the termination of the joint venture the defendant would account to the plaintiff for his contribution to the Properties or alternatively hold the plaintiff’s contribution to the Properties on trust (common intention constructive trust or joint venture trust or resulting trust) for the plaintiff^[25].

(c) Separately from and in addition to the Agreements, in about January 2011, the plaintiff and Mr Leung on behalf of the defendant agreed that a certain amount from the respective profits from Team A and Team B should be reserved each month so that they could pay the staff members bonuses before the Chinese New Year (“the Bonus Saving Agreement”).  The plaintiff performed his part under the terms of the Bonus Saving Agreement by allowing a certain amount to be withheld from his share of profits payable by the defendant every month.  The Bonus Saving Agreement would be terminated on 1 September 2014, the same date on which the Termination Agreement took effect.  The plaintiff claimed that there was an implied term of the Bonus Saving Agreement that upon the termination of the joint venture the plaintiff was entitled to half of his share of the saving^[26] or alternatively, half of the saving which the plaintiff contributed between January and June 2014 were subject to a Quistclose trust^[27].

The Defendant’s Case

29.  On the other hand, the defendant denied that the business relationship between the parties was one of a joint venture but claimed that the defendant had engaged the plaintiff to be an agent to provide services to the defendant under the Agreements^[28].

30.  Mr Leung met the plaintiff in 2000 when Mr Leung was at the time employed by G4S.  In 2006, Mr Leung instructed his wife to incorporate the defendant.  In 2009, as Mr Leung wished to expand the defendant’s business and had the idea of hiring an independent agent to work for the defendant. He was minded to provide incentive to that agent by way of a profit sharing scheme.  As the plaintiff had from time to time complained to Mr Leung of his dissatisfaction with his then employment at G4S, Mr Leung invited the plaintiff to join the defendant as a general manager and to be remunerated by a profit sharing scheme. Hence, on 1 September 2009, the defendant and the plaintiff entered into the 1^st Agreement.  On 1 April 2010, the defendant and the plaintiff in his trading name “Joe Lines Company”, entered into the 2^nd Agreement. The substance of the 1^st and the 2^nd Agreements was identical[29].

31.  According to the defendant, it was intended by the parties all along from the beginning that the plaintiff joined as a manager to provide services to the defendant and that the plaintiff was never entitled to share the profits of the defendant except in accordance with the terms set out in the Agreements.  The provisions in the Agreements referring to profit sharing were for consultancy service fees payable to the plaintiff[30].   The defendant merely entrusted the plaintiff with its clients’ contracts and the plaintiff must report to Mr Leung who was the ultimate decision maker in all aspects of the defendant’s business[31]. Despite the fact that Team A was run by the defendant and Team B was run by the plaintiff, the defendant provided general administrative support, the necessary equipment and supplies to Team B[32], and some clients that Team B served were in fact secured and assigned to Team B by the defendant[33].

32.  According to the defence case, Mr Leung deliberately distanced himself from the management of the defendant between 2009 and December 2012 because, in the event that the defendant did not succeed in the industry, Mr Leung said he did not want to be associated with a failed business[34].

33.  In about the end of 2013, Mr Leung decided that the defendant’s business should be further expanded and a “Team C”, identical to the arrangement of Team B run by the plaintiff, would be set up and led by a Mr David Lai.  However, as Mr David Lai was at that time still stationed in Shanghai and could not take up Team C until May 2014, Mr Leung suggested and the plaintiff agreed that, between January and April 2014, the plaintiff would take up the work of Team C as an additional task for a fixed fee of HK$30,000 per month[35].  That explained, according to the defendant, why the 4 invoices issued by Joe Lines Limited to the defendant between January and April 2014 had been duly settled by the defendant.

34.  On 25 July 2014, the plaintiff informed Mr Leung orally of his intention to terminate the 2^nd Agreement, and that the plaintiff would take some of the defendant’s staff and clients from Team B with him.  Mr Leung told the plaintiff that the plaintiff was immediately relieved of his duties.  The defendant denied that Mr Leung on the defendant’s behalf agreed to terminate their business relationship and thus denied the existence of the Termination Agreement and its terms. By contrast, it was the defence case that the plaintiff unilaterally breached the 2^nd Agreement and the defendant terminated the 2^nd Agreement as a result of the plaintiff’s breach[36].

35.  Only after 25 July 2014, Mr Leung found out how the plaintiff had been working behind the defendant’s back since May 2014, to set up his own security service company, cause some of the defendant’s staff members to help with setting up the plaintiff’s company, and solicit the defendant’s clients[37]. The defendant’s case was that the plaintiff was at all material times an agent of the defendant, hence the plaintiff owed the defendant duties and/or fiduciary duties implied by law or by the common intention of the parties[38].  These alleged misconduct committed by the plaintiff between May and July 2014, in general, formed the basis of the defendant’s counterclaim in DCCJ 3647/2014.

36.  In answer to the plaintiff’s claims in DCCJ 3392/2014, i.e. the HK$660,000 under the 22 invoices, the defendant contended that those monthly invoices issued by the plaintiff to the defendant was in fact proof of an arrangement whereby HK$30,000 claimed in each invoice was payroll to Mr Leung for his services rendered to the defendant and that the plaintiff understood he was not entitled to that monthly payment[39].  Thus, between April 2012 and January 2014, the plaintiff issued a total of 22 monthly invoices each of HK$30,000 and all payments (a total of HK$660,000) were made to Mr Leung who was then an “off the record” member of the staff of the defendant and that the plaintiff never chased after such payments until the plaintiff purportedly terminated the 2^nd Agreement in July 2014[40].

37.  The defendant further claimed that the 4 invoices issued by the plaintiff between January and April 2014 for HK$30,000 each, which were all duly paid, were distinct from the 22 invoices issued before January 2014 in that those 4 invoices were the result of the plaintiff and Mr Leung having expressly agreed that the defendant would pay the plaintiff for his additional work done in servicing clients not of Team B[41].

38.  At the same time, in DCCJ 3392/2014, the defendant counterclaimed against the plaintiff for repayment of the outstanding loan of HK$100,000 advanced by the defendant to the plaintiff[42], which the plaintiff had orally agreed to repay but failed to[43].

39.  In defence to the plaintiff’s claim in DCCJ 3647/2014, the defendant denied that the plaintiff was entitled to his share of profits for July and August 2014 because the plaintiff was in breach of the 2^nd Agreement by failing his duties as an agent when establishing his own security service company and soliciting the defendant’s clients in competition with the defendant since May 2014.  The defendant therefore rightfully refused to pay the plaintiff his share of profits for those months.  According to the defence case, there was never an agreement between the parties on any deduction of the outstanding amount of the loan of HK$100,000 from the plaintiff’s share of profits[44].

40.  The defendant denied that it had the obligation to account to the plaintiff or held on trust for him any alleged contribution made by the plaintiff in the acquisition of Properties because the parties orally agreed that all expenses incurred in relation to the Properties would be treated as “agreed total overhead cost” of the defendant which would be used to calculate the plaintiff’s monthly share of profits in accordance with the terms under the 1^st and/or the 2^nd Agreements[45].

41.  The defendant also denied that it was under any obligation to repay the plaintiff any of his contribution to the year-end bonuses arising from any alleged implied term under the Bonus Saving Agreement as the contribution made by the plaintiff was treated as the plaintiff’s share of overhead expenses which was used in the calculation of the plaintiff’s share of profits under the 2^nd Agreement[46].

42.  At the same time, in DCCJ 3647/2014, the defendant counterclaimed for the return of the plaintiff’s share of profits already paid by the defendant to the plaintiff for the months of May and June 2014.  It was contended by the defendant that the plaintiff was not entitled to such payment because the plaintiff was during that period of time in breach of the 2^nd Agreement by failing his duties as an agent.  In addition, the defendant, by way of counterclaim, contended that it should be entitled to damages from the plaintiff and that the plaintiff should account for all the sums and benefits obtained in breach of his duties as an agent of the defendant.

The Key Issues

43.  Although the parties set out a number of issues for both actions DCCJ 3392/2014 and DCCJ 3647/2014[47], the key issues can be conveniently summarised as follows.

44.  The common and primary issue in both cases is the exact nature of the business relationship between the plaintiff and the defendant[48] (“Issue 1”).  In essence, the plaintiff’s case is that it was one of contractual joint venture whereas the defendant’s case is that it was one of agency.

45.  In DCCJ 3392/2014, whether the plaintiff and Mr Leung of the defendant entered into an oral agreement in March 2012 regarding the plaintiff’s agreement in performing additional work for Team A and the defendant, and the plaintiff was therefore entitled to a total payment of HK$660,000 under the 22 invoices for the period from April 2012 to January 2014 less repayment of a loan of HK$100,000 owed to the defendant^[49] (“Issue 2”).

46.  In DCCJ 3647/2014, the key issues are: -

(a) Whether the plaintiff and Mr Leung on behalf of the defendant entered into the Termination Agreement on 25 July 2014 and if so, what its terms were^[50] (“Issue 3”).

(b) Whether the defendant was in wrongful non-payment of the plaintiff’s share of profits for the months of July and August 2014^[51] (“Issue 4”).

(c) Whether the defendant was liable under any implied terms of the Agreements or by way of trust to pay or account to the plaintiff for his share of contribution to the Properties acquired for the defendant’s business^[52] (“Issue 5”).

(d) Whether the defendant was liable under any implied terms of the 2^nd Agreement or by way of trust to pay half of the plaintiff’s share for January to June 2014 under the Bonus Saving Agreement^[53] (“Issue 6”).

(e) In relation to the defendant’s counterclaim, whether the plaintiff had acted in breach of his implied duties as an agent or otherwise (“Issue 7A”), whether the defendant was entitled to not pay the plaintiff his share of profits for the period between May and August 2014 (“Issue 7B”), whether the plaintiff was liable to repay the defendant the service fees already paid by the defendant for the months of May and June 2014 (“Issue 7C”), and whether the plaintiff was liable to pay damages to the defendant and/or account for the benefits obtained by him as a result of his breaches of duties as an agent of the defendant^[54] (“Issue 7D”).

Analysis

47.  On the plaintiff’s side, the plaintiff and Ms Tsang Siu Ling Hermia gave evidence.  Ms. Tsang met the plaintiff when they were both employees of G4S, she joined the defendant in November 2012 as Administrative Officer through the plaintiff’s introduction and left the defendant to join the plaintiff’s company in September 2014^[55].  The plaintiff’s case rests on the evidence of the plaintiff personally and that of Ms Tsang is of marginal importance.

48.  On the defendant’s side, Mr Leung gave evidence.

49.  The parties also produced various documents to support their respective cases.

50.  Obviously, this is basically a case of the personal evidence of the plaintiff against that of Mr Leung.  The determination of the key issues in this case turns on the credibility of these two witnesses, the plaintiff and Mr Leung.

51.  When assessing the evidence of factual witnesses, I bear in mind the useful guidance from what DHCJ Au (as he then was) said in the judgment of Lee Fu Wing and anor v Yan Po Ting Paul and anor[56]: -

“53. In assessing the credibility of a party’s case on a particular issue, I accept the submissions of [leading counsel for the Plaintiffs] that the Court should take into considerations the following:

(1) Whether the party’s case is inherently plausible or implausible.

(2) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4) The demeanour of the witnesses.”

52.  I now proceed to deal with the issues one after another.

Issue 1: Was the business relationship between the plaintiff and the defendant one of a joint venture or an agency?

53.  There is no settled legal definition of “joint venture” and there is much fluidity and versatility to the concept.  The characterisation of the nature and kind of business cooperation entails the imposition of rights and liabilities on the parties, therefore the significance of the determination of this particular issue in these proceedings.

54.  Before I turn to the evidence, it is pivotal to bear in mind that the respective cases of the parties are clear and distinct. On the one side, the plaintiff contended that the business cooperation was one of a contractual joint venture[57]. On the other side, the defendant contended that the parties’ relationship was one of agency[58]. Hence, at the end of the day, I shall make a finding in accordance with the respective pleaded cases of the parties.

55.  As this is an issue common and central to both actions, I shall consider all the evidence to form a picture as accurate as possible of the business cooperation of the parties in order to determine its true nature.

56.  There was undisputed and uncontradicted evidence that the plaintiff had extensive experience and good business connections or contacts that he earned from his previous employment in the field of security-related services and that it was Mr Leung of the defendant who took the initiative to invite the plaintiff to join force with him in April 2009.  I have little doubt that Mr Leung hoped to tap into the professional experience and good networks of the plaintiff which would be valuable to the defendant’s business.

57.  Mr Leung stressed in both his witness statement[59] and his live evidence that the plaintiff was motivated by his dissatisfaction with his former employer (G4S which is an international security services company) to join the defendant. This, however, does not sit well with the other objective evidence, namely, the plaintiff was promoted twice in 2007 and 2008 respectively, each year he was given substantial bonus in recognition of his performance at work and that he was offered medical insurance by his former employer[60] for his daughter who required regular medical treatment.  In March 2009, the plaintiff was Senior Manager earning HK$42,000 monthly salary plus a year-end bonus of HK$89,250 from G4S[61]. All these facts seem to refute the defendant’s suggestion.  On the other hand, apparently, it carried considerable risk for the plaintiff to leave his then stable employment with G4S to join the defendant where there would be no fixed sum of salary but a share of profit from Team B which basically had to start from scratch.

58.  I take the view that it was not an easy decision for the plaintiff to leave his then employment with G4S, which had been providing good prospects and financial stability, to join the defendant.  In the circumstances, it is likely that there was something which the plaintiff considered that he would not obtain if he continued to work as an employee for G4S, for instance, greater control over his work, professional development in the field of security services and opportunities for greater financial rewards. These incentives appear to be better and more convincing reason for the plaintiff to join the defendant as opposed to be being dissatisfied with his then employment with G4S as suggested by Mr Leung.

59.  The parties agreed that the 1^st Agreement and the 2^nd Agreement, which were identical in substance, fully represented the intention of the parties at the time of execution.  I shall refer to them in this judgment simply as “the Agreements” where appropriate.

60.  As the Agreements were home-made documents, their terms were loosely drafted without precise definitions, hence giving much room for competing interpretations.   For the sake of completeness, I set out the full contents of the 1^st Agreement (the contents of the 2^nd Agreement are the same except that all the references to the plaintiff personally as “Lai Kim Ming, Joseph” were replaced by the plaintiff’s company “Joe Lines Company”) as follows: -

“SECURITY CONSULTANCY SERVICE AGREEMENT

THIS AGREEMENT MADE THE 1^ST DAY OF SEPTEMBER 2009 BETWEEN:

(1) Macrotech Security & Management Services Limited [B.R No. and address] (Hereinafter referred to as “Company”).

(2) Mr Lai Kim Ming, Joseph [HKID No.] (Hereinafter referred to as “Manager”).

WHEREAS:

(A) The Company desires Manager to obtain and run the new operational projects for Macrotech Security & Management Services Limited.

(B) The Manager will be responsible for the marketing and obtain contract from clients with estimated gross profit of higher than 17%. He also will be responsible for the daily operation of his projects.

[Sic] The Company will provide all necessary support to the department to support the daily operations.

(D) The rewards paid to the Manager is based on the profits sharing scheme.

THE “COMPANY” AND “MANAGER” HERETO AGREED AS FOLLOWS:

(1) The Manager is to obtain and run the projects for the Company. A separate bank account will be maintained in order to reflect the projects’ financial performance. A separated department financial statement will be extracted for the Company’s financial statement at every month ended as a basis for calculating the profit share scheme.

(2) The Company is responsible for all supporting administration and logistic functions of the projects controlled by the Manager, such as payroll, accounts etc.

(3) The manager will share the overhead of the Company as the formula calculated below:

[(The agreed total overhead cost + any extra overhead incurred from manager’s new project) * (The percentage of the new monthly revenue from manager’s project to the company overall monthly revenue)]

(4) The rewards paid to the manager will be the Profit Sharing Scheme as formula calculated below:

Reward = (Gross Profit from Manager’s new project – agreed sharing overhead)* 50%

(5) Such reward will be paid on the monthly base after the client has paid to the Company.”

61.  The undisputed context in which the parties came to cooperation was that the plaintiff’s value lay in his experience and contacts with clients in the field of security services and that this was most likely the reason he was invited by Mr Leung to join the defendant.  Even Mr Leung agreed that he had told the plaintiff that the latter could help develop new business for the defendant, he could represent to others as “General Manager” of the defendant, and that he would be remunerated not by a fixed salary but under a profit sharing scheme^[62].

62.  The above is amply acknowledged by both the preamble and clause 1 of the Agreements which nail the colours to the mast: the plaintiff was “to obtain and run the projects for the Company” (emphasis added).  It is important to note that, as clearly expressed above in the Agreements, the plaintiff was not only to “run” but also to “obtain” new projects in the first place.  Hence, it must be clear to the parties and so was their common intention, that the plaintiff’s first and foremost task, if he was minded to join the defendant, was to make the best use of his contacts and connections to secure new clients or new contracts for the defendant forthwith. This is particularly important for the plaintiff, as he had given up his previous job with a fixed salary plus benefits to join the defendant with no salary at all but to be remunerated under a profit sharing scheme.

63.  Clauses 3 and 4 of the Agreements regarding the calculation for overhead expenses and the profits sharing scheme put the matter beyond any doubt.  They highlight the commercial purpose as agreed by the parties: the defendant convinced the plaintiff to join by providing obvious financial incentive, that is, no salary at all but simply profit sharing for bringing in new projects or contracts.  Such intention was accordingly reflected in the parties’ intended establishment of separate teams of Team A and Team B in the defendant, which arrangement was to be implemented through clause 1 of the Agreements which provided for separate bank account[s] “in order to reflect the projects’ financial performance” and separate monthly department financial statement[s] “for calculating the profit sharing scheme”.

64.  In the Agreements, the plaintiff was referred to as the “Manager”.  First, there was no definition or any description of powers and duties of the post of “Manager” of the defendant under the Agreements.  More importantly, the evidence at trial disclosed that the title “Manager” did not accurately reflect what the parties had in mind at the time of entering into the Agreements as they did not even discuss the plaintiff’s actual title prior to entering into the 1^st Agreement or thereafter[63].  The plaintiff in 2 letters issued to clients in June 2011 signed as “Operation Director”[64] but signed documents as “General Manager” after June 2011.  It was Mr Leung’s evidence that it was easier for clients to accept the title of “General Manager” and clients may feel that they were treated well by someone in a senior position[65].

65.  As with most small or even medium scale businesses, it is perhaps unsurprising that the parties did not pay much attention to formal titles to demarcate authorities and responsibilities.   As such, I do not consider any significance can be attached to the term or title “Manager” as provided for in the Agreements and would not consider that label alone to find out the parties’ real intention when determining the genuine business relationship between the parties.  Instead, I shall look at all the evidence as a whole.

66.  The fundamental disagreement between the parties in these proceedings, was whether the plaintiff was a party to a joint venture of himself and the defendant to secure contracts for and run Team B exclusively (the plaintiff’s case), or whether the plaintiff was merely engaged as a manager and therefore an agent to look after both Team A and Team B of the defendant (the defendant’s case).

67.  I observe that, although the terms of the Agreements were far from being precise about the plaintiff’s scope of work, clauses 1, 3 and 4 pointed unequivocally to separate projects and therefore separate teams in the defendant.  I also note that clause 2 which provided that  “The Company is responsible for all supporting administration and logistic function of the projects controlled by the Manager…” echoed the preamble “The Company will provide all necessary support to the department to support the daily operations” (emphasis added), both  reinforcing the tenor of separate teams, which in turn justified the plaintiff’s duty in sharing the defendant’s overhead expenses in computation of his monthly share of profits (clauses 3 and 4).

68.  My reading of the Agreements as above is further reinforced by the largely unchallenged fact that separate teams were in fact set up upon the plaintiff’s joining the defendant in September 2009.  On that basis, I find it difficult to accept the defendant’s submission that, as the plaintiff shared the office, the overhead costs and the staff of the defendant, it was reasonable to expect the plaintiff to also assist in servicing Team A and handling the defendant’s administrative matters[66].  The reading of the Agreements as a whole, against the background that the plaintiff was valued for his contacts with clients and his experience in the field, suggests strongly that there was a clear division of labour by way of separate teams within the defendant.

69.  Having found that the tenor of the Agreements was to set up separate teams for the business, the next question is whether the parties envisaged that separate teams were to be run and managed independently by the plaintiff and the defendant respectively.  The plaintiff’s case was that he had total discretion over the management of Team B.   The defendant, on the other hand,  denied that Team B run by the plaintiff was to be independent but merely a “subset” in the operation of the defendant[67] and that Mr Leung was the ultimate decision-maker of all aspects of the business of the defendant including the operation of Team B[68].

70.  Again, on this issue, the Agreements should be the primary point of reference: -

(a) Paragraph B of the preamble requires the plaintiff to obtain contracts “with estimated gross profit of higher than 17%”. This express minimum profit margin requirement indicates that the plaintiff enjoyed discretion over pricing – if the fees to be charged were subject to Mr Leung’s approval, there would have been no need for such stipulation.

(b) There was evidence from the plaintiff in his testimony in court that, at one time when negotiating a contract with one of his clients, he had to discuss with Mr Leung as that contract could only attain a profit margin of below 17%.   In other words, as long as the profit margin would be 17% or above, the plaintiff could make his own decision without any need to discuss with Mr Leung.

(c) Similarly, the reference to “any extra overhead incurred from manager’s new project” in clause 3 meant direct costs-bearing by the plaintiff for Team B contracts which in turn suggests that the plaintiff had certain control over the overhead costs for Team B contracts.

(d) When looking at all the above matters of profits and costs together, I am of the view that those relevant provisions in the Agreements did confer significant degree of control, even if not full or absolute control, on the plaintiff over the management of Team B, which is consistent with the eventual profit-sharing scheme deciding on the monthly “reward” to be paid to the plaintiff under clauses 4 and 5 of the Agreements.

(e) The high degree of control over Team B by the plaintiff as described above, is clearly indicative of the parties’ common intention in the first place as well as the fact that the plaintiff was more than a mere manager in the usual sense or simply an agent as claimed by the defendant.

71.  By clause 4 of the Agreements where the plaintiff would gain 50% of the profit from Team B as his reward, it follows that the defendant would stand to gain the remaining 50% of the profit generated by Team B under the plaintiff’s management and operation.  By contrast, the plaintiff did not share in any of Team A’s profit, no matter how successful it was or it would be. In my view, this is an important feature of the parties’ cooperation which reflect their common intention when they decided to join forces: they pooled their respective resources – the  requisite trading licence as well as the financial resources by the defendant on the one hand and the expertise as well as connections by the plaintiff on the other hand – in a pursuit of profits in the business in which they shared the risks and the rewards in accordance with their mutual agreement (as set out in the “formula” under the “profit sharing scheme”).

72.  It is also unchallenged evidence that the parties agreed to and did contribute to the staff year-end bonus every year by reserving a part of their monthly share of profits but the plaintiff was not eligible for the bonus[69]. This I find very revealing of the parties’ thinking and intention.  The rhetorical question would be: if the plaintiff was a mere manager and an agent of the defendant, in the usual business sense, and that he simply rendered services to whichever team or teams as directed by the defendant, as the defendant claimed in its case, why would the plaintiff be willing to shoulder a portion of the staff bonus to which he was not entitled at all?  It is important to note that, the plaintiff, by agreeing to such arrangement, year after year, to contribute to the staff year-end bonus, he would suffer a double loss.  Not only that he was not entitled to any of that bonus at the end of each year, but also he had to give up part of his profit each month.  It is contrary to common sense for an employee or an agent to find that arrangement agreeable.

73.  Furthermore, and again it was not disputed, that Mr Leung and the plaintiff discussed by email about which expenses should be counted as general overhead expenses and which should be overheads incurred by Team B.  If the plaintiff was merely a manager, an employee or an agent, it would be unreasonable for him to have a say in categorization of overhead expenses, general or Team B’s, as it would directly affect the defendant’s entitlement in Team B’s profits (which the plaintiff and the defendant would share 50-50) as well as Team A’s profits (which the defendant would have all and the plaintiff would not be entitled to any).

74.  It is noteworthy that it was Mr Leung’s evidence that by the end of 2013 the defendant intended to establish a “Team C” to be run by a Mr David Lai, duplicating the mode of operation of Team B managed by the plaintiff, and that the defendant would assign contracts to “Team C”[70].  There is a distinct difference between that Team C (if any) and the Team B run by the plaintiff.  According to the “Profit and Loss Accounts for 2014”, David Lai was paid a fixed sum of HK$25,000 each in May and June 2014 but did not share any overhead expenses nor profits[71].  If Mr Leung was telling the truth about establishing a Team C which was to mirror the operation of Team B, it would be inexplicable why in fact there was no similar profit sharing mechanism between David Lai and the defendant.  It was revealing that Mr Leung said in his evidence that he only needed to pay a salary for a manager[72].  Therefore, it would make sense if it was Mr Leung’s intention to find the plaintiff as a “partner” (in the loose sense) with profit-sharing and that David Lai as a “manager” with only a fixed salary.  I agree with the plaintiff’s submission that the plaintiff was the only one who was entitled to share profits with the defendant, which clearly indicates that he was more than a mere manager in the usual sense or an agent as claimed by the defendant.

75.  The defendant pointed to some emails in which the plaintiff wrote in a deferential manner to Mr Leung, specifically used the phrase “for your approval” to show that the plaintiff did not have full autonomy under the defendant.  While it may be true that in some cases seeking approval may indicate subordination, it has to be considered in the full circumstances of a particular case.  I also note that, though in some emails where the phrase “for your approval” was used, in most of the emails adduced for trial, the plaintiff simply wrote to inform Mr Leung of certain actions or things which he had taken or done.  Having considered all the circumstances, I accept the plaintiff’s live evidence in court that his writing of “for your approval” to Mr Leung was only an expression of respect or courtesy, but the purpose of his emails was merely to inform Mr Leung of certain matters rather than seeking his specific approval[73].

76.  Both parties referred to the contract signed with Hill & Associates (“the HA Contract”), which was the appointed security service consultant of the Apple Inc. in Asia and therefore a major client. The HA Contract was first assigned to Team B in late 2012 and Mr Leung re-assigned that contract to Team A in late 2013.

(a) The plaintiff relied on it as an example to show Mr Leung’s unreasonable behaviour being one of the reasons leading to the plaintiff’s eventual departure.  The defendant relied on it to show that, although the HA Contract was initially booked under Team B, it was not procured by the plaintiff and that Mr Leung had the ultimate say in all aspects in the business of the defendant, thereby contradicting the plaintiff’s case of full control over the operation of Team B^[74].

(b) In my view, that HA Contract or the matters relating to it do not assist me in ascertaining the nature of the parties’ business relationship.  Even if the defendant’s version is true, that HA Contract was not procured by the plaintiff in the first place but was assigned to Team B and subsequently taken away by the defendant, that alone does not necessarily mean that the plaintiff did not have full and independent control over Team B and its operation.  In any event, there was no dispute that the HA Contract was re-assigned and it aggrieved the plaintiff.

(c) I pause here to make one remark though.  It is the defendant’s case that the HA Contract was not procured by the plaintiff yet initially assigned by Mr Leung to Team B for almost a year “so that [the plaintiff] could earn more Service Fees in the hope to satisfying his needs for sustaining his lifestyle”^[75]. That runs contrary to the logic of Mr Leung’s own evidence that the Agreements provided financial incentive to the plaintiff to bring in business under the profit sharing scheme.  If the plaintiff was unable to bring in sufficient business at that time, why would the defendant assign the sizable HA Contract to better pay the plaintiff who was supposed to be an underperforming “agent” (according to the defence case)?  That does not make any commercial sense at all as the defendant by assigning one of its contracts (not to mention that it was a sizable one) to the plaintiff would mean a direct loss of 50% of its related profit (as all the profits under Team B would be shared between the plaintiff and the defendant).

(d) Mr Leung said in his evidence that the transferring of the HA Contract away from Team B in late 2013 was to “assist David [Lai] to be able to earn a service fee to be able to sustain his livelihood during the initial period of him taking up “Team C””^[76]. That was nevertheless contradicted by the accounts which showed that David Lai was in fact remunerated by a fixed sum and not by profit sharing^[77].

(e) Whatever the true reason for re-assigning the HA Contract may be, it would not cause me any doubt as to what I have found to be the genuine nature of the business relationship between the parties as I did in the preceding paragraphs.  On the contrary, those self-contradictory aspects in Mr Leung’s evidence have made me even more sceptical of his evidence.

77.  I do not find it necessary to deal with the various allegations of why or how Mr Leung had acted to cause the plaintiff’s eventual departure from the defendant to reach my determination on this very issue of the nature of the parties’ business relationship.  The truth or otherwise of the parties’ allegations against each other or any of them, in relation to the reason(s) for the final break-up of the parties in 2014, does not have any bearing on what the parties had intended upon establishing their business relationship since September 2009 (upon the signing of the 1^st Agreement) and continuing the same since April 2010 (upon the signing of the 2^nd Agreement).

78.  After careful consideration, for all the above reasons, I am satisfied on the balance of probabilities that the business relationship or cooperation between the plaintiff and the defendant is by nature a contractual joint venture as contended by the plaintiff, but not one of an agency as contended by the defendant.

Issue 2: Did the parties enter into an oral agreement in about March 2012 that the plaintiff should perform additional work for HK$30,000 monthly?

79.  The defendant submitted that, since the alleged oral agreement made in about March 2012 was additional to and outside the scope of the Agreements, the court’s finding on the nature of the business cooperation is irrelevant to Issue 2[78]. I do not agree.  My view is that my finding on the nature of the Agreements which determines the parties’ business relationship is relevant to the actual scope of the plaintiff’s work thereunder and cannot be divorced from my consideration of and my final determination on Issue 2.

80.  The plaintiff’s case was that, under the Agreements, he was only required to obtain and run the new contracts for Team B and to be paid a profit in accordance with the formulas; thus in about March 2012, the parties orally agreed that the plaintiff should be further remunerated for his additional services rendered to the defendant’s Team A as well as his handling of the headquarters’ administrative matters.  The plaintiff, apart from his own evidence, relied on the 22 invoices issued to the defendant to support that oral agreement.

81.  The defendant’s case was that, the plaintiff joined as a manager to the defendant and was required to procure, run or operate the defendant’s new contracts; hence the defendant never agreed to pay the plaintiff HK$30,000 monthly for his services which was in any event provided for under the terms of the Agreements.  It is noted that in the Re-Re-Amended Defence and Counterclaim of DCCJ 3392/2014, the defendant did not plead specifically that the plaintiff was to provide service to Team A as well as Team B; instead the defendant pleaded “the Defendant engaged the Plaintiff to provide consultancy services to the Defendant…” and that some projects under Team B “were not obtained or procured by the Plaintiff were assigned by the Defendant to Team B for servicing”[79].  The defendant claimed that the invoices issued by the plaintiff between April 2012 and January 2014 were the result of an arrangement whereby the HK$30,000 charged in each invoice was in fact salary paid to Mr Leung, who at the time intentionally shielded his involvement with the defendant from his then employer[80].

82.  I have found that the Agreements showed that the business relationship between the parties was one of joint venture.  I have also found that the tenor of the Agreements was the parties’ intention to set up separate teams, for one of which (Team B) the plaintiff enjoyed high degree of control over pricing and costs, highlighted by the undisputable fact that the plaintiff was to share the defendant’s overhead expenses (directly incurred by Team B contracts as well as the general overheads) before taking his monthly share of profits.  On the other hand, there was an absence of any term (express or implied) requiring the plaintiff to service or support “teams” or “departments”.  It begs the question: if the plaintiff was to provide service to both Team A and Team B, would there be a provision regarding a remuneration for servicing Team A (bearing in mind there were only references to the plaintiff bearing costs and sharing profits from Team B contracts but nothing for Team A contracts)?

83.  The defendant’s explanation was that the plaintiff’s invoices issued between April 2012 and January 2014 were the result of a special arrangement between the plaintiff and Mr Leung so that the latter could get paid from the defendant off the record.

84.  I consider Mr Leung’s proclaimed need for concealment of his salary from the defendant’s record very odd and therefore unreasonable. First, Mr Leung had already been named a director for the defendant since 1 December 2012 and a shareholder by February 2013[81].  There was no need for such special and secret arrangement throughout that full period between April 2012 and January 2014.  More importantly, Mr Leung in his evidence repeatedly stressed that he was the beneficial owner and in actual control of the defendant[82] and his wife and his younger brother, as shareholders and directors, were assigned to deal with administrative work in the defendant.  If Mr Leung really needed to draw a monthly salary without having his name on the defendant’s payroll (so as to conceal it from his then employer as he claimed), he could easily and more conveniently have done so through his wife or his brother without making such convoluted arrangement with the plaintiff.  I find the defendant’s explanation in this aspect unbelievable and reject it without any hesitation.

85.  The defendant pointed to a number of cheques drawn by the defendant in favour of Mr Leung of HK$30,000 each[83], it was argued by the defence that some of which could be matched with the contemporaneous ledger listing[84] to support its case of special arrangement between the parties.  I have the following observations: -

(a) First, those cheques drawn in favour of Mr Leung matched with entries in the ledger “Joe Lines – Mgt fees –Special” except cheque no. 666185, whose the corresponding entry read “Leung Ka Tat MGT fee 12/2013”[85]. This last cheque entry in the ledger is remarkable as it rebuts the defendant’s evidence that Mr Leung wished to avoid leaving his trace in the defendant’s records.

(b) Second, if all of the invoices and cheques so issued were the results of the same special arrangement as the defendant claimed, why was there the sudden change in the description on cheque no. 666185?

(c) Third, attributing cheques drawn in favour of Mr Leung to “Joe Lines – Mgt fees – Special” does not necessarily mean the plaintiff had agreed to such attribution, as it was Mr Leung’s wife who was involved in the issuing of cheques by the defendant.  Mr Leung’s wife did not give evidence in these proceedings and therefore there is nothing to explain on what grounds or for what reasons she attributed the cheques in favour of Mr Leung to the plaintiff’s invoices in the company’s ledgers.

(d) Therefore, I decline to attach any weight to the description of cheques in the ledgers as proof of the alleged special arrangement between Mr Leung and the plaintiff as the defence claimed.

86.  There were a few other documents adduced by the defendant which, as argued by the defence, could support the defence case of the said special arrangement between Mr Leung and the plaintiff.  I disagreed for the following reasons.

(a) The defendant’s Notices of Payment to Persons Other than Employees regarding payment to the plaintiff for the period of 1 April 2012 to 31 March 2013 was first filed to the Inland Revenue Department on 30 April 2013, showing a total of HK$1,260,700 paid to the plaintiff[86]. Curiously, on 16 October 2014 (18 months later), the defendant filed another Notice reporting HK$900,700 paid to the plaintiff[87]. The difference between the two reported amounts was exactly HK$360,000 (i.e. HK$30,000 x 12 months).

(b) On the same day, 16 October 2014, the defendant filed a Notice reporting its payment of HK$390,000 to Mr Leung for the same reporting period.

(c) I agree with the plaintiff’s submission that this is highly suspicious as the amended Notices were filed belatedly only after the plaintiff had issued through his solicitors a demand letter on 18 August 2014 making clear his intention to claim for the outstanding sums under the 22 invoices.

(d) Similarly, for the reporting period of 1 April 2013 to 31 March 2014, the Notice filed by the defendant reporting payment to the plaintiff was subsequently amended to purportedly reduce the amount paid to the plaintiff, the difference being HK$270,000 (i.e. HK$30,000 x 9 months) and representing the sum which allegedly paid to Mr Leung for invoices issued between April 2013 and January 2014.

(e) I accept the plaintiff’s submission that these documents were prepared under dubious circumstances and that they were not truly contemporaneous and genuine documents. Instead, they are self-serving documents and I do not consider any of them lending any support to the defendant’s case of that special arrangement between the plaintiff and Mr Leung.

(f) For the sake of completeness, I reject Mr Leung’s evidence that the defendant retrospectively “put things right” with the amended Notices of Payment to Persons Other than Employees because the defendant had received competent but late advice from its auditors.  As observed above, cheque no. 666185 was described to be payment for “Leung Ka Tat MGT fee 12/2013”[88]. If the description of this particular payment was accurate and truthful, it would mean that by December 2013 the defendant had already understood this payment and all those earlier payments to Mr Leung pursuant to the alleged special arrangement must have been recorded in the relevant Notices to the Inland Revenue Department.  Why were those relevant Notices not amended right away or soon after but only in October 2014 (only after the plaintiff had through his solicitors made clear his claim in August 2014 on this very matter)?

87.  Last but not least, I cannot ignore the fact that, by the original Notices, the plaintiff would have paid tax for the amount he had purportedly received under that so-called special arrangement when he in fact did not receive nor was entitled to, which would be HK$360,000 more a year (HK$30,000 x 12 months).  There was simply no reason for the plaintiff or any reasonable man in his position to accept that when the immediate result would be additional tax to be paid to the government.

88.  Mr Leung’s evidence was that, in about December 2013 he had the idea of establishing a Team C to which existing Team B contracts would be assigned and he asked the plaintiff to provide supporting services to Team C for a monthly payment of HK$30,000 before David Lai took over[89].  This is again unconvincing and unbelievable.  If the defendant’s case was all along that the plaintiff was required under the terms of the Agreements to provide service to whichever team as directed[90], why would Mr Leung on the defendant’s behalf initiate to pay extra to the plaintiff at all?  On the other hand, it would be inconceivable for the plaintiff to accept that arrangement as it would mean that he would lose his Team B contracts and therefore would not have any profits derived therefrom under the profit sharing scheme in accordance with the Agreements.

89.  For all the above reasons, on the balance of probabilities, I accept the plaintiff’s evidence on those 22 invoices and reject that of Mr Leung.  I accept that the plaintiff entered into an oral agreement with the defendant to receive HK$30,000 per month for his additional services to be rendered to Team A and to deal with the defendant’s administrative matters.  As such, I find that the plaintiff should be entitled to the unpaid sum of HK$660,000 under those 22 invoices as claimed.

90.  In DCCJ 3392/2014, the defendant counterclaimed against the plaintiff for HK$100,000 being the unpaid loan previously advanced to the plaintiff.  The plaintiff did not dispute that such a loan was once advanced to him and that he had not repaid it.  Both parties agree that any counterclaim awarded to the defendant may be set-off against any sums awarded to the plaintiff. I therefore make an order that the counterclaim of HK$100,000 is to be set off against the sum of HK$660,000 to be paid to the plaintiff.

Issue 3: Did the plaintiff and Mr Leung on behalf of the defendant entered into the Termination Agreement? If so, what were the terms?

91.  The plaintiff’s case is that he informed Mr Leung in person at a meeting in the afternoon on 25 July 2014, that he would terminate the 2^nd Agreement and leave the defendant with effect from 1 September 2014, followed by an email sent to Mr Leung at 7:08 pm on the same day (“the Email”)[91] evidencing the consensus reached between him and Mr Leung on behalf of the defendant.  According to the plaintiff, he and Mr Leung had reached consensus on various matters at the end of the meeting, evidenced by the subsequent Email, in order to part ways amicably (“the Termination Agreement”).

92.  By contrast, the defendant’s case is that the defendant never agreed to any terms relating to the termination of the 2^nd Agreement as the plaintiff claimed, but it was the plaintiff who tried to terminate the 2^nd Agreement unilaterally.  The defendant claimed that the plaintiff was its agent under the Agreements and therefore owed fiduciary duties to the defendant.  The plaintiff, by secretly setting up his own security service company and committing the related acts since May 2014 before the termination of the 2^nd Agreement, committed breaches of his fiduciary duties.  As a result, the defendant was entitled to and therefore counterclaimed against the plaintiff for damages, an account of all the benefits received by the plaintiff by his breaches and return of the plaintiff’s share of profit for the months of May and June 2014 already paid to the plaintiff by the defendant.

93.  Before I make a factual determination on the existence or otherwise of the Termination Agreement, there is nevertheless a noteworthy matter.  Obviously, the 2^nd Agreement (just like the 1^st Agreement) did not provide for its termination, nor did it provide for the period for which the commercial cooperation was to last.  In other words, the 2^nd Agreement seemed to envisage the parties to engage in cooperation for an indefinite period of time.   A few issues may then arise, namely, was the plaintiff as a matter of law entitled to terminate the 2^nd Agreement if he wished? If so, what was required of the plaintiff to terminate the 2^nd Agreement?  Did the plaintiff meet that requirement to terminate the 2^nd Agreement in the circumstances of this case?

94.  The learned authors of Chitty on Contracts, Specific Contracts[92] stated at §17-197:

“A party to a joint venture could not simply walk away from the venture unilaterally without any rights to do so under the contract, as this may well amount to repudiation of its obligations under the contract, giving the other parties the right to damages. However, if the joint venture is for an indefinite duration, it seems that the venture can be terminated by any party, at least by giving reasonable notice, on the basis of an implied term. Such a term will not be implied though if it would be inconsistent with an express term that only permits termination by agreement of all the parties or if it is otherwise inappropriate to imply such a term under the normal principles for implying terms into a contract.” (emphasis added)

95.  Neither party disputed that the 2^nd Agreement was indeed terminated.  Their cases differed by how the 2^nd Agreement came to an end.

96.  In legal terms, the plaintiff’s case is one that the 2^nd Agreement was discharged by “accord and satisfaction” under mutual agreement of the parties; hence the issue of whether the plaintiff was entitled to terminate the 2^nd Agreement did not arise.  The defendant’s case was that the plaintiff’s “announcement” of leaving the defendant with some staff members and clients on 25 July 2014 was an act of wrongful “termination”.  Only because of the plaintiff’s breaches of fiduciary duties as an agent and only upon discovery of the plaintiff’s breaches after 25 July 2014, the defendant terminated the 2^nd Agreement in response.

97.  In this context, I shall first of all consider if the plaintiff has made out his case of termination of the 2^nd Agreement by “accord and satisfaction” under mutual agreement between himself and Mr Leung on behalf of the defendant.  In other words, I shall first of all decide on whether there existed a Termination Agreement as claimed and relied upon by the plaintiff.

98.  It is undisputed that the relationship between the plaintiff and the defendant had deteriorated by April 2014 as they disagreed over various matters such as which expenses should be counted as directly incurred by Team B and which should be counted as general overhead expenses to be shared between the parties[93]. It is not disputed that, on 25 July 2014, the plaintiff orally told Mr Leung that he would leave the defendant, take with him some staff members as well as some Team B clients (the parties only disputed as to whether there was in fact agreement reached on the arrangement).  It is also not in dispute that the plaintiff sent the Email to Mr Leung of the defendant on the same day in the evening, i.e. at 7:08 pm on 25 July 2014, recorded the date on which the plaintiff would leave the defendant (1 September 2014), which members of staff (a total of 10 with names provided) would leave with the plaintiff and which 2 clients (Gucci and LV) would remain with the defendant.  The Email, nevertheless, did not mention anything about the plaintiff’s share of profits for the months of July and August 2014 or the loan of HK$100,000 owed by the plaintiff to Mr Leung.

99.  First and foremost, I am required to resolve the conflicting versions before me on whether the parties had entered into the Termination Agreement.

100.  The plaintiff stated that, Mr Leung at the meeting had no objection against the termination of the 2^nd Agreement[94] and that the parties came to consensus as per the terms of the Termination Agreement.  I do not propose to go into the details of his evidence in this regard.  I do not consider that alone to be determinative of this issue of the existence or otherwise of the Termination Agreement.

101.  On the other hand, Mr Leung on behalf of the defendant gave different accounts (under his witness statements, his own testimony in court and by way of cross-examination of the plaintiff) on what exactly happened at the meeting between himself and the plaintiff on 25 July 2014, in particular about how Mr Leung came to learn of the plaintiff’s establishment of his own security service company.  There were also different accounts given by the defendant as to whether Mr Leung had immediately relieved the plaintiff of all his duties and whether the plaintiff could return to office after that meeting.  Mr Leung unequivocally said in his witness statement that he told the plaintiff that his duties were relieved with immediate effect and that he no longer had to come to office[95] but he said differently in court that at the end of that meeting he even agreed that the plaintiff could return to the office to work afterwards[96]. Again, I do not propose to go into the details of his evidence in this aspect. Just like my approach in dealing with the plaintiff’s personal evidence in this aspect, I do not consider Mr Leung’s evidence alone to be determinative of this issue of the existence or otherwise of the Termination Agreement.  In any event, it was not challenged that at the meeting Mr Leung understood at least that the plaintiff was leaving the defendant on 31 August 2014 and, that he was taking with him some of the Team B staff members as well as all the clients of Team B except two.

102.  Here is a typical case of one’s words against another’s. Whilst I have considered all the evidence of the plaintiff himself and Mr Leung in relation to what happened in that meeting on 25 July 2014 and all the related matters, I would not decide on this very issue of the existence or otherwise of the Termination Agreement alone on the evidence of those two witnesses.  I would rather weigh more and place more emphasis on the inherent probabilities and improbabilities of the parties’ respective cases and try to draw inferences from the undisputed or proven facts.

103.  My observations are: -

(a) The Email was indisputably sent by the plaintiff to Mr Leung shortly after the meeting (just within a few hours).  At the beginning of the Email, it was politely written to set out the reason for the termination of the relationship or cooperation (the parties having “different ways” to operate), the plaintiff believed that the defendant “have enough ability” to run the business, and that the plaintiff considered that was the “suitable time” to leave “to avoid to obstruct the growing” of the defendant[97]. In a similar tone, at the end of the Email, the plaintiff wrote to thank Mr Leung for the support and opportunities given and wish the defendant well[98].  On the face of it, all the above in the Email sent subsequent to the meeting on the same day, seems likely to reflect an amicable settlement between the parties having been reached at the earlier meeting.

(b) I noted, in particular, that the Email contained and started with the phrase “As per our mutual agreed [sic]” before setting out thereafter the exact termination date of the 2^nd Agreement and the names of the two remaining Team B clients[99].  This also seems to lend support to the plaintiff’s case that there was not only discussion but also agreement reached at the earlier meeting.

(c) Also, the Email clearly set out the names of the 10 staff members who would be tendering their resignation soon on 1 August 2014[100] (i.e. about a week after the meeting and that Email).  There was no need for the plaintiff to do so.  In fact, it would probably be to the plaintiff’s advantage if he concealed that from the defendant until the last minute.  Apparently, the plaintiff was giving advance notice to Mr Leung so that the latter could get prepared.  Eventually, with that prior notice, Mr Leung was able to act right away on the same evening to persuade 3 managers to stay with the defendant.  This also seems to be in line with the plaintiff’s case that the parties were able to reach settlement at the meeting.

(d) I have also considered Mr Leung’s spontaneous reaction at the meeting.  He said, in his live testimony[101], that when he was first told about the plaintiff’s intention to leave, he immediately asked about the repayment of HK$100,000 loan owed by the plaintiff and he also asked if he could talk to those staff members who were minded to leave (he then approached 3 managers for dinner later that evening, proposed a 20% pay rise and eventually persuaded them to stay).   Mr Leung then asked the plaintiff if he had anything to add, the latter asked to continue working in the office during that period and Mr Leung agreed.  It appears that, not only that Mr Leung had raised no objections to or questions about the plaintiff’s departure, but also his immediate response as described above seems to suggest that he was in agreement with the plaintiff’s proposal and therefore wasted no time in chasing after the outstanding loan from the plaintiff and retaining the staff members who might soon be leaving.  On this point, I did not lose sight of Mr Leung’s subsequent email to the plaintiff on 27 July 2014[102], where he stated, among other things, that there was no mutual agreement for the plaintiff to bring with him any client’s contracts from the defendant.  I however do not consider that subsequent email to be of much significance.  This seems to me to be an attempt to undo part of the earlier agreement as an afterthought, especially when I noted that email was only sent 2 days later after Mr Leung “having obtaining [sic] the legal advise [sic]”.

(e) Lastly and perhaps most importantly, I further observed that, as in the meeting and the subsequent Email, it was stated clearly that all Team B clients would leave the defendant for the plaintiff’s new company except two, namely LV and Gucci.  It was not challenged that LV brought in the most revenue and Gucci being the fourth in bringing the most revenue for Team B as in the preceding month June 2014[103]. These two clients together bought in more than HK$1.1 million revenue in June 2014, in particular LV being the biggest client brought in revenue of HK$813,189 in June 2014 while that from the second biggest client (Muji) was only HK$341,953.  The plaintiff must be far better off if he could take all the Team B clients, in particular the big ones, to his newly established company.  Anyone in the plaintiff’s position would at least endeavour to take all the existing clients to a newly set up company. This is particularly the case when all those clients were Team B clients which were all along served by and taken care of by the plaintiff.  It would be very strange and does not make any commercial sense for the plaintiff to voluntarily give up and leave behind to the defendant two of his sizable and among the most profitable clients, of course unless there had been some agreement with Mr Leung of the defendant, as per the plaintiff’s case.

104.  None of the above if considered in insolation is conclusive, but the cumulative effect of all leads me to a factual finding, on the balance of probabilities, that the plaintiff and Mr Leung did enter into the Termination Agreement on 25 July 2014 evidenced by the Email later that evening, as the plaintiff put forward in his case, and that the terms of the Termination Agreement are as per the contents of that Email.  In other words, I accept the plaintiff’s case that the parties agreed that their relationship or cooperation under the 2^nd Agreement would come to an end on 31 August 2014, the plaintiff was given to understand that he could take some Team B staff members and some Team B clients with him to his new company.

105.  Since I accept the plaintiff’s case of termination of the 2^nd Agreement by “accord and satisfaction” under mutual agreement between himself and Mr Leung on behalf of the defendant, there is no need for me to consider the remaining questions such as the plaintiff’s entitlement or otherwise to terminate the 2^nd Agreement under an implied term of reasonable notice, whether or not the plaintiff’s notice, oral (given at the meeting) and/or written (under the Email), constituted reasonable notice, and so on.  However, for the sake of completeness, if I am wrong about the existence of that Termination Agreement, I find that the notice given by the plaintiff to Mr Leung on 25 July 2014 to terminate the 2^nd Agreement effective from 1 September 2014 constituted “reasonable notice” to terminate the subject agreement.

Issue 4: Whether the defendant was in wrongful non-payment of the plaintiff’s share of profits for the months of July and August 2014

106.  At the time of the meeting on 25 July 2014 where the plaintiff informed Mr Leung of his departure effective on 1 September 2014, it was near the end of July 2014.  As such, no matter what happened or would happen afterwards, all the work for July 2014 by then had almost been done and the profit sharing for that month should follow.

107.  Without anything indicating the otherwise (neither in the meeting on 25 July 2014 nor the Email later that evening), the parties should naturally understand and most likely would have agreed that they would carry on performing the 2^nd Agreement in accordance with its terms, including the monthly profit sharing under the profit sharing scheme as per clause 4, until the Termination Agreement would take effect from 1 September 2014.

108.  The defendant pointed out that, in the plaintiff’s Email to Mr Leung on 25 July 2014, the plaintiff did not set out fully the terms of the Termination Agreement, in particular, the term on profit-sharing for the months of July and August 2014.  This, argued by the defendant, showed that there was no Termination Agreement, let alone agreeing to distribute Team B profits of July and August to the plaintiff.  I have already taken that into account and weighed that against other circumstances, for various reasons as described in detail in the earlier paragraphs, find that there existed the Termination Agreement as contended by the plaintiff.

109.  In fact, as to why there was no mentioning of profit sharing for July and August in the Email, the plaintiff in his live evidence had offered an explanation.  He explained that he would not like to discuss money matter openly in that Email because it was copied to Team B employees[104]. It was also the plaintiff’s evidence that he “learnt from past experience with [Mr Leung] that he may renege on his word, I therefore decided to send the email in P26 after the meeting on the same day”[105].   The plaintiff’s case is consistent in that there was no discussion between the parties about the profits for July and August 2014 (but only discussions about termination of business relationship, taking away with him some staff members and some clients of Team B) in that meeting on 25 July 2014 and that explained why there was no such mentioning of profit sharing for July and August 2014 in the Email.

110.  For argument’s sake, even taking Mr Leung’s core case in relation to the Termination Agreement to the highest, i.e. there was no agreement in the meeting and that he only learnt about the plaintiff’s secret establishment of his own company subsequent to 25 July 2014, without Mr Leung knowing more at the time of the meeting, why would the parties not agree to perform the full terms of the 2^nd Agreement until 31 August 2014?  If the parties decided, by agreement, not to continue with the profit sharing during the time between the meeting and 31 August 2014, they would most likely have agreed that for the month of August 2014 only, as by then it was already approaching the end of July 2014 and the work for that month had almost been done.

111.  Viewed against the background of the Agreements, and viewed against my findings in Issue 3 that there was a Termination Agreement, as well as all the other circumstances, it would be most unusual that the parties had come to an understanding that profits for July and August 2014 would not be paid to the plaintiff as per the 2^nd Agreement which remained effective until 31 August 2014.

112.  I therefore find that the plaintiff should be entitled to his share of profits for the months of May to August 2014, as per the terms of the 2^nd Agreement until its termination on 31 August 2014.

113.  The plaintiff’s share of profits for the months of May and June 2014, for the respective sums of HK$83,900 and HK$107,266, had already been paid, what remains to be decided are those for the months of July and August 2014, where there was certain controversy between the parties.

114.  The issue for plaintiff’s share of profit for the month of July 2014 is relatively straightforward, as by the time the parties, as I have found, came to reach the Termination Agreement on 25 July 2014, the work for that particular month had almost been done and the sums could be finalised with little dispute.  The plaintiff, with the voluminous accounting documents prepared by the defendant, worked out the figure to be HK$103,781.76[106].  I am prepared to accept that, as I said there could be little dispute.  Further, it is worth noting that the respective figures of the plaintiff’s share of profits for the months of June and July 2014 are very close and that adds credibility to the plaintiff’s calculation.

115.  What is more complicated is the quantification of the plaintiff’s share of profit for the month of August 2014, the reason is that the plaintiff who was denied access to the company computer did not return to work in the defendant’s office[107]. The defendant’s version is that Team B of the defendant, after the departure of the plaintiff and some Team B staff, suffered a loss and after calculation the plaintiff’s entitlement for the profit for August 2014 should be a negative figure (i.e. -HK$38,739.25).  The plaintiff, on the other hand, seriously challenged that calculation and claimed that Team B had never suffered a loss in the last 5 years when the parties were in cooperation[108].  The plaintiff, on his calculation, suggested a modest figure of HK$15,233.48[109].  I am prepared to accept that figure suggested by the plaintiff.  Even assuming it is true that the plaintiff had to cut or re-arrange the Team B business after the departure of the plaintiff and some staff, it would be most unlikely that the defendant had suffered a loss in August 2014, bearing in mind that the plaintiff’s share of profits for the immediate preceding months of June and July 2014 each being over HK$100,000.

116.  As said, I find that the plaintiff should be entitled to his share of profits for the months of July and August 2014, which should be HK$119,015.24 in total (HK$103,781.76 + HK$15,233.48).

Issue 5: Was the defendant liable under any implied terms of the Agreements or by way of trust to pay or account for the plaintiff’s share of contribution to the Properties?

117.  The plaintiff’s case was that clause 3 of the Agreements stated that the costs of the Properties, such as a vehicle, uniforms and equipment, would be shared between the plaintiff and the defendant and that there was a term implied by business efficacy under the Agreements that on termination of the business venture, the defendant would account to the plaintiff for the plaintiff’s share of the Properties.  Alternatively, the defendant held the value of the Properties on trust for the plaintiff by common intention constructive trust, joint venture constructive trust or resulting trust.

118.  The defendant denied that it was liable in any way or to any extent to the plaintiff in relation to the Properties.  The defendant claimed that the vehicle bearing the licence plate PU 5745 was under a hire-purchase agreement the expenses incurred for which were counted as “agreed total overhead cost” of the defendant which would be deducted against the plaintiff’s monthly share of profits as stipulated in the Agreements.  Similarly, the costs for uniforms and equipment were accounted for and written off as “agreed total overhead cost” or “extra overhead incurred from Team B Projects” against the plaintiff’s monthly share of profits.  As such, the defendant was in no way liable to account for the plaintiff’s contribution or held on trust for the plaintiff any sum[110].

119.  First, it is not disputed that there was no express term under the Agreements, nor any party alleged that it was orally agreed at any stage, on how to handle the costs of the Properties upon termination of the Agreements.

120.  Second, both parties agreed, or at least not taking issue with, that: (a) the Properties were used for both Team A and Team B and expenses incurred to be borne according to clause 3 of the Agreements; (b) for the purpose of calculating the plaintiff’s monthly share of profit all expenses relating to the hire purchase of the vehicle was to be treated as “agreed total overhead cost”; (c) for the purpose of calculating the plaintiff’s monthly share of profit the expenses for uniforms and equipment were to be treated as “agreed total overhead cost” or “extra overhead costs” of Team B under the terms of the Agreements; and (d) for accounting and tax purposes, the expenses for the Properties would be amortized over 12 months or as one-off expenses as applicable[111].

121.  I first deal with the issue of implied terms, as contended by the plaintiff.

122.  The applicable law is well-settled.  Understandably, the parties in these proceedings have by and large agreed on the law of implied terms, as contained in AG of Belize v Belize Telecom Ltd and anor[112] as adopted by Tadjudin Sunny v Bank of America, National Association[113] in Hong Kong.  The 5 considerations for which a court may imply a term into a contract are: (a) it must be reasonable and equitable to do so; (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; and (e) it must not contradict any express term of the contract.

123.  Yifung Developments Limited v Liu Chi Keung Ricky provided some helpful guidance[114]: -

“28. The House of Lords has since held that AG v Belize should not be interpreted as diluting the traditional test of necessity for implying a term: Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd & anor [2015] 3 WLR 1843, §§18-31, 57-74, 76-77, in particular §§23-24. Lord Neuberger added 6 comments (at §21) to the 5 requirements in BP Refinery:

(i) The implication of a term was “not critically dependent on proof of an actual intention of the parties” when negotiating the contract but was concerned with what notional reasonable people, in the position of the parties at the time at which they were contracting, would have agreed.

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

(iii) It is questionable whether the first requirement of reasonableness and equitableness, will usually, if ever, add anything. If a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable.

(iv) Although the 5 requirements are otherwise cumulative, business necessity and obviousness can be alternatives in the sense that only one of them needs to be satisfied.

(v) 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.

(vi) Necessity for business efficacy involves value judgment. The test is not one of “absolute necessarily”. It may well be that a more helpful way of putting the 2^nd requirement is that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.

29. Lord Hoffmann in AG v Belize suggested that the process of implying terms into a contract was part of the exercise of the construction, or interpretation, of the contract. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understand to mean? Lord Neuberger in Marks and Spencer reiterates that construing the words used and implying additional words are different processes governed by different rules. It is only after the process of construing the express words is complete that the issue of an implied term falls to be considered (at §§26 & 28).

30. Further, Lord Neuberger explains that whether a term is implied is to be judged at the date the contract was made and the reasonable reader of the contract would consider the term to be so obvious as to go without saying or to be necessarily for business efficacy. (at §§22 & 23)”

124.  A term is not to be implied into a contract lightly.  As Lord Hoffmann in AG of Belize v Belize Telecom Ltd stated,

“17. 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.”

125.  Also as explained in Chitty on Contract, the 32^nd Edition,

“Whether or not a term is implied is conventionally said to depend upon the intention of the parties as collected from the words of the agreement and the surrounding circumstances.” (at 14-003)

“In many cases where it is sought to imply a term as a matter of fact, one or other of the parties will seek to imply a term from the wording of a particular contract and the facts and circumstances surrounding it.  The court will not make a contract for the parties but will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question.  Traditionally, an implication of this nature may be made in two situations: first, where it is necessary to give business efficacy to the contract, and secondly, where the term implied represents the obvious, but unexpressed, intention of the parties.  These two criteria often overlap and, in many cases, have been applied cumulatively, although in other cases they have (more sensibly) been treated as alternative grounds.  Both are predicated to depend on the presumed common intention of the parties.  Such intention is, in general, to be ascertained objectively and is not dependent on proof of actual intention of the parties at the time of contracting.  As so formulated, these criteria were traditionally regarded as “tests” which were required to be satisfied if a term was to be implied.” (at 14-005)

126.  I bear in mind that it is for the plaintiff to prove that there should be such a term, as contended, implied into the Agreements.

127.  I also bear in mind that in deciding on whether to imply a term, “the question for the court is whether such provision would spell out in express words what the instrument read against the relevant background would reasonably be understood to mean”[115].  Therefore, my primary reference is all the express terms of the Agreements.

128.  In the Agreements, it was stated in the preamble that the defendant would provide all necessary support to the daily operations of Team B; and under clause 2, the defendant is also responsible for all supporting administration and logistic functions of Team B projects.  I have remarked above that the supporting and administrative service provided by the defendant to Team B justified the sharing of overhead cost by the plaintiff in the profit sharing scheme under the Agreements. As such, it is unsurprising that the parties agreed to treat the expenses incurred by the acquisitions of the Properties as overhead cost, to be shared in proportion to the revenues brought in from their respective teams.

129.  The absence of any term in the Agreements providing for termination of the business venture is the first and major hurdle for the plaintiff to prove such an implied term of the defendant being liable to account to the plaintiff for the plaintiff’s share of the Properties on termination of the business venture, by business efficacy as contended.  Would an implied term on sharing the Properties upon termination be necessary in the business sense to give efficacy to the contract or, in other words, give the Agreements “commercial or practical coherence”[116]?  The answer is clearly no.

130.  I remind myself that, as I observed in the earlier paragraphs of this judgment, in agreeing to cooperate with each other in business, the plaintiff was valued for his extensive experience and good connections or contacts in the field of private security-related services.  In other words, the plaintiff brought with him to the defendant his skills and his goodwill, the “software”, which were intangible assets to the joint venture.  The plaintiff was not required to provide any working capital to the defendant, whether by way of shareholding or by loans.

131.  On the other hand, there was unchallenged evidence that,  the defendant had previously taken out various loans from banks and from friends to finance the operation of the business[117], e.g. for the purchase of equipment, payment of office rentals and supporting staff salaries.  In other words, the defendant brought to the business venture the capital and the “hardware”.

132.  Against such a context, I cannot say that a term as to sharing the Properties in the sense as the plaintiff claimed, with respect to the tangible assets to be used in the business, must have obviously been the intention of the parties.  To put it in another way, not sharing the Properties in whatever way upon termination of the Agreements would not defeat the commercial aim or create practical absurdity in the conduct of the defendant’s business.

133.  It would not be correct to imply a term as to sharing the Properties upon termination into the Agreements just because it appeared fair or merely because the parties would have agreed on the term had it been suggested to them when entering into the Agreements.

134.  I am also of the view that a reasonable person in the position of the parties at the time of entering into the Agreements, if in contemplation of possible termination of the business cooperation in the future, would not have agreed to the sharing of the Properties like the vehicle, the uniform and equipment between the parties upon termination because the Properties were not what the plaintiff brought to the business collaboration.

135.  I cannot ignore the unchallenged fact that the parties agreed to attribute and share the costs of equipment, uniforms and vehicle as overhead expenses and to amortize (where appropriate) the expenses over 12 months, which would have been fully absorbed by the revenues and resulted in the eventual share of profits between the parties.  These were in fact express terms of the Agreements.  To say that upon termination of the Agreements, the plaintiff was entitled to a share of the assets would mean that the plaintiff would be allowed to renege on his agreement to have his profits deducted by the relevant portion of overhead expenses.  This cannot be correct.

136.  The plaintiff’s claim for his “contribution” to the Properties[118] is fraught with difficulties.  The plaintiff argued that, since Team B brought in sizable revenues to the defendant during the life of the business collaboration, the plaintiff in turn shouldered a large portion of the expenses for the purchase of uniforms and equipment proportionally, therefore funding the purchase[119].  If that was the case, it also means that the plaintiff had earned a large portion of profit under the profit sharing scheme of the Agreements.

137.  Although I agree with the plaintiff that accounting treatment is different from ownership, I cannot accept his submission in this aspect as it is irrelevant as to any entitlement of a share of contribution in the Properties upon termination of the subject agreement.

138.  First, it is not entirely clear how the notion of beneficial ownership, as claimed by the plaintiff, flowed from the fact that the plaintiff had shared the overhead costs of the defendant.  In my view, to deduct the cost of an asset in the generation of income in business as a going concern cannot equate to the acquisition of a property for on-sale (whether or not as a business).  In a business, the cost of an asset can be amortized or written off, i.e. to be deducted from the gross profit as an expense, over a certain period of time.  During that period the “expense” so incurred simply does not denote ownership of the asset but only acknowledges and allocates the cost in generating the incomes for the relevant period.  This exactly explained why the parties agreed, as clearly spelt out in the Agreements, to apportion overhead expenses by reference to the incomes generated by their respective teams.

139.  Second, does sharing the overhead expenses mean funding the acquisition of uniforms and equipment together?  The answer must be no.  There is no evidence to show what had already been used in performing the clients’ contracts (thus rightly deducted from the plaintiff’s share of profit) in contrast with what was still in the defendant’s possession and for its use on 31 August 2014 (for which the plaintiff now claims his share).  The plaintiff’s claim on the value of uniforms and equipment in the defendant’s possession and for its use on 31 August 2014 is not well supported by evidence.

(a) In the accounts, some of the expenses relating to the Properties were specifically attributed to certain clients  (e.g. “4 Walkie Talkie (H&M)”[120] and “Staff Uniform (LV)”[121]) and some expenses for uniforms attributed to each month varied[122].  This may indicate that the parties’ practice was to record costs of uniforms and equipment attributed to specific clients and spread over the period of their respective contracts where practicable.  These expenses may then be matched with the respective team revenues for calculating the share borne by each team.  This is consonant with my above observation as to treating the costs of certain assets as expenses is a means of acknowledging the input of those assets in generating the relevant revenues.

(b) There is little evidence before me as to how the parties decided, in relation to uniforms and equipment, as to what, when and how much to purchase, whether for specific contracts or for general purchase to prepare for future contracts or for replacement of the existing ones – which may be carried forward as non-current assets.

(c) The audited accounts did not reveal clearly whether the uniforms, equipment and the vehicle were listed as non-current assets[123]. The plaintiff asserted that Mr Leung and he decided together on each of the purchase whether as additional items or replacement for old items[124] but did not provide further particulars.  There is simply no evidence, over the 5 years in 2009 to 2014, as to how often the business had to make a purchase of any of these items and how big or small each purchase was.  It is unlikely that the plaintiff and Mr Leung had on each and every occasion discussed and made a decision together. In any event, there was no documents or records or anything to support that.

(d) The state of evidence does not allow me to make a finding that the expenses “incurred” were linked to the acquisition of uniforms and equipment.

140.  Given the above, I am of the view that no term regarding the sharing of the Properties, nor the split of the related contribution upon termination, as the plaintiff claimed, could be implied into the Agreements.

141.  I now proceed to deal with the issue of common intention constructive trust, joint venture constructive trust or resulting trust, with respect to the Properties, as contended by the plaintiff.

142.  The plaintiff’s alternative basis for taking a share in the Properties is by constructive trust, arising either by the parties’ common intention or by their joint venture arrangement or by resulting trust.  It was argued by the plaintiff that since he bore a substantial part, or even more than half, of the expenses in relation to the uniforms, equipment and the vehicle therefore partly funding their purchase, a common intention could be inferred that the defendant would hold on trust the plaintiff’s share. Again, I am not persuaded to find that bearing overhead expenses equated to acquiring beneficial ownership in the various equipment for use in the conduct of business, as I have expressed my view above.

143.  I am not convinced that the parties had such common intention to acquire the relevant beneficial interest by sharing overhead expenses.  I accordingly do not accept the plaintiff’s argument that the defendant held on trust the plaintiff’s share of the Properties for the plaintiff and therefore should account for it upon termination of the business under the Agreements.

144.  For all the above reasons, I therefore reject the plaintiff’s claim for his share of contribution to the Properties acquired for the defendant’s business, under the notions of implied terms or trust.

Issue 6: Was the defendant liable under any implied terms of the 2^nd Agreement or by way of trust to pay to the plaintiff half of the plaintiff’s contribution made in January to June 2014 under the Bonus Saving Agreement?

145.  It was not in dispute that since 2011, the plaintiff and Mr Leung on the defendant’s behalf orally agreed to set aside some profits of Team A and Team B respectively each month as reserve for year-end bonuses to be paid to the defendant’s employees during the subsistence of the business relationship [125].

146.  The plaintiff claimed that there was an implied term of the Bonus Saving Agreement that, upon the termination of the Agreements, the Bonus Saving Agreement would also terminate; and upon termination of the Bonus Saving Agreement, the defendant would pay to the plaintiff a sum representing the plaintiff’s share kept aside but not yet distributed or alternatively hold that sum on trust for the plaintiff[126].

147.  The defendant claimed that the amount to be set aside by the plaintiff was treated as the overhead expenses of the defendant, which would be shared by the plaintiff according to clause 3 of the Agreements and that there was no implied term regulating the termination of the Bonus Saving Agreement[127].

148.  The existence of the Bonus Saving Agreement is not in dispute.  Even on the plaintiff’s case, he admitted that he and Mr Leung on the defendant’s behalf never discussed as to how to deal with their respective contributions made under the Bonus Saving Agreement when the 2^nd Agreement was terminated.

149.  The plaintiff’s case was that, the distribution of bonus to the staff of the defendant was not automatic each year but subject to discussion and consensus of the plaintiff and the defendant[128].

150.  On the other hand, Mr Leung on behalf of the defendant stated that every staff member of the defendant was entitled to a bonus.  The defendant asserted that the funds set aside under the Bonus Saving Agreement had been distributed to the defendant’s staff before the Chinese New Year in 2015[129].

151.  Again, just like my approach in Issue 5, I first deal with the issue of implied terms which were suggested by the plaintiff to be included in the subject contract.

152.  The plaintiff pleaded that the following terms should be implied into the Bonus Saving Agreement, by business efficacy: -

“(a) the Bonus Saving Agreement would only remain valid for as long as the 2^nd Agreement and/or the Joint Venture Agreement remain valid and existing;

(b) the Bonus Saving Agreement would terminate if the 2^nd Agreement and/or the Joint Venture Agreement terminated; and

(c) should the Bonus Saving Agreement be terminated, the Defendant would account to and pay to the Plaintiff his sums previously kept aside but not yet distributed under the Bonus Saving Agreement (“the Plaintiff’s Share in Bonus Saving), which pursuant to the express term of the Joint Venture Agreement as evidenced by clause 4 of the 2^nd Agreement, would be 50% of the Plaintiff’s Share in Bonus Saving.”[130]

153.  The legal principles regarding implied terms have already been summarised above and here I do not seek to repeat.

154.  I shall first deal with the alleged implied term that the Bonus Saving Agreement would terminate upon the termination of the 2^nd Agreement (this essentially encompasses both implied terms (a) and (b) suggested by the plaintiff and set out above).  I agree that such an implied term was necessary to give business efficacy as it would be absurd that the plaintiff would have to continue setting aside sums for paying defendant’s staff year-end bonuses after he ceased his commercial collaboration with the defendant.  It would also be so obvious that any reasonable person in the position of the parties at the time of the Agreements would have agreed so.

155.  Having decided that a term governing the termination of the Bonus Saving Agreement was implied, I then turn to implied term (c) which the plaintiff contended to exist under the Bonus Saving Agreement, namely, that upon the termination of the Bonus Saving Agreement, the plaintiff would get back his contribution which was not distributed.  Now the plaintiff sought half of his contribution to the bonus saving made between January and June 2014[131], on the basis that he had shouldered half of the bonus contribution made by Team B for the relevant period as he only shared 50% of Team B’s net profits according to clause 4 of the Agreements.

156.  It is not disputed that the plaintiff was managing and operating Team B during January to June 2014.  Even taking to the highest the defendant’s allegation that the plaintiff had breached his fiduciary duties since May 2014, the plaintiff earned profits in the months for which he now claimed half of his contribution to bonus saving.  The plaintiff’s evidence was that the practice of giving staff year-end bonus was a common practice in the industry[132]. There was of course no express consensus between the parties to contribute to the bonus saving pro rata if one of them left the business cooperation in the middle of a year.

157.  I observe here that the plaintiff did not plead, nor tried to argue, that there was an implied term in the Bonus Saving Agreement that the defendant must consult the plaintiff as to whom or how much bonus to distribute before each distribution to a particular staff member.  It seems to me that the absence of such an implied term adds to the plaintiff’s difficulty in arguing that there was an implied term of returning his undistributed contributions – after all, without the term on prior consultation with the plaintiff, what significance could be attached to the fact that the contributions were undistributed?  There was no evidence before me to explain why the parties decided to set aside some of their profits on a monthly basis instead of requiring a lump sum from the plaintiff and the defendant just before the annual bonus distribution. It could have been motivated by administrative convenient or otherwise.

158.  My view is, if the parties were engaged in a joint venture with a view to bearing risks and profits separately, consistent with the plaintiff’s pleaded case that the Bonus Saving Agreement’s validity and termination being tied to that of the 2^nd Agreement and that his claim on contribution to bonus saving being tied to clause 4 of the 2^nd Agreement, the parties’ intention was to contribute to the bonus saving for as long as they operated their business within the defendant.  If the plaintiff was entitled to take his monthly share of profits from Team B for the months of January to June 2014 (or even up to August 2014 as claimed and as I have already found in favour of the plaintiff when dealing with Issue 4), I cannot see how a term that he would be allowed to recoup his share of contribution to the bonus saving (or any part of it) upon termination of the Bonus Saving Agreement could be implied.  In my view, such an implied term would run contrary to the business efficacy and result in practical absurdity of the Bonus Saving Agreement, and would not be reasonable and equitable.

159.  On that premise, it is not necessary for me to resolve at this point whether the bonus saving in question was indeed distributed or whether the staff was given the bonus as a matter of course or subject to the plaintiff’s approval.  But for the sake of completeness, I accept the defendant’s version that the relevant bonus had been distributed to the staff members of the defendant before the Chinese New Year in 2015.  The fact that the plaintiff and the defendant parted ways in September 2014 should not have any bearing on the distribution of the bonus for the year of 2014.  As the defendant continued with the business with its staff in 2015, there is no reason why it would not distribute the staff bonus for the previous year of 2014 which was specifically set aside for that purpose.

160.  I do not find that the plaintiff was entitled to half of his share of the bonus saving in question under any implied terms in the Bonus Saving Agreement, the reason being that I do not find such implied terms exist as contended by the plaintiff.

161.  Just like Issue 5, the plaintiff here also advanced an alternative basis of trust for this claim.  As an alternative to the said notion of implied terms, the plaintiff claimed that the defendant held the plaintiff’s share of contribution to the staff bonus on Quistclose trust because those profits were withheld with a specific purpose, namely as payment of year-end bonus to the staff members of the defendant.

162.  It is not challenged that some of the plaintiff’s share of profits were withheld by the defendant for the purpose of distribution to staff as year-end bonus.

163.  In determining whether there is a Quistclose trust, the central question is “whether the parties intended the money to be at the free disposal of the recipient and his freedom to dispose of the money is necessarily excluded by an arrangement that the money should be used exclusively for the stated purpose”[133].   The answer to that question in the present case is clear: no, the defendant was not free to dispose of the profits so set aside which was to be paid as staff year-end bonus, for that stated and specific purpose.

164.  Second, “a requirement to keep moneys separate is normally an indicator that they are impressed with a trust and the absence of such a requirement, if there are no other indicators, normally negatives it”[134]. There is no evidence before the court as to whether the Team B profits so set aside, once deducted from the plaintiff’s share of monthly profits, was put into a special account separated from the defendant’s other monies.

165.  Third, a Quistclose trust is “for the payer subject to a power for the recipient to apply the money in accordance with the stated purpose…If the power does not comply with the requirements for certainty, the result is not that there is no trust at all and the recipient takes beneficially but rather that the recipient has no power to make use of the money and must return it to the payer as it is held on resulting trust on him”[135]. In the present case, it was not disputed that the power was certain, i.e. to distribute to staff members, the amount subject to the defendant’s discretion, before the Chinese New Year each year.

166.  For clarity’s sake, it must be noted that the power to which the recipient of the money under a Quistclose trust must be certain: “the power will be valid (such that if exercised in accordance with its terms, it will be effective to determine A’s beneficial interest) if the court can say that a given application of the money or property does or does not fall within the terms of the power”[136].  In the instant case, there was certainty of object, i.e. that the class of beneficiaries, being the defendant’s staff, was certain.

167.  In the circumstances of this case, it appears that the main features of a Quistclose trust were present, save the segregation of trust money from the defendant’s other monies.  Nevertheless, for the sake of argument, even assuming that the contribution made by the plaintiff by allowing part of his monthly profits withheld was in fact under a Quistclose trust, is the plaintiff now entitled to the return of that contribution?  For the following reasons, my answer is no.

168.  The plaintiff would only be entitled to the return of his contribution to the bonus saving when the stated purpose under the Quistclose trust (if existed) failed.  The real question here is therefore: had the purpose failed on 31 August 2014 when the 2^nd Agreement (also the Bonus Saving Agreement) was terminated?  Or put it in a more specific way in the circumstances of this case: could the relevant bonus be distributed and paid to the staff members of the defendant before the Chinese New Year of 2015?

169.  Contradictory evidence was given as to whether the staff was entitled to the bonus at year-end as a matter of course or subject to the plaintiff’s approval.  On reading the records of distributed staff bonus in the past years, employees were given different amounts, in different proportions to their monthly salaries.  There were also remarks as to why certain employees were given bonuses.  I also observe that the bonuses paid were not funded equally by Team A and Team B.  For example, Yee was paid a full-month bonus fully borne by Team A while 45% of Kee’s bonus was borne by Team A while 55% by Team B[137]. The unequal treatment accords with the plaintiff’s account that bonus was given subject to his and the defendant’s discretion and approval at year-ends.  On the available evidence, I tend to accept the plaintiff’s evidence that he and Mr Leung of the defendant would and had to discuss at some stage about which staff member should receive a bonus and how much.

170.  The crux of the plaintiff’s argument was that, under the Bonus Saving Agreement, the defendant “could only lawfully distribute the funds after agreement with the [plaintiff], and once the purpose fails, the money had to be returned to the [plaintiff]”[138].  In my view, there are two dimensions to this argument: first, that the defendant had a discretion to apply the money to that specific purpose, i.e. as staff year-end bonus and not for any other purpose; second, that discretion could only be exercised in a specific manner, i.e. in consultation with the plaintiff.  From there, the plaintiff’s argument that follows should be, since the Bonus Saving Agreement, together with the 2^nd Agreement, was terminated effective from 1 September 2014, the defendant would or could not be in a position to consult and agree with the plaintiff to whom and how much to distribute the bonus before the Chinese New Year in 2015; so the “purpose” must have failed and the plaintiff retained the beneficial ownership of his share of contribution and should be entitled to the return of the same.

171.  In Twinsectra Ltd v Yardley, it was held:

“Given that the money did not belong to the borrower in either case, the borrower’s insolvency should not have prevented the money from being paid in the manner contemplated. A man cannot pay some only of his creditors once he has been adjudicated bankrupt, but a third party can. A company cannot pay a dividend once it has gone into liquidation, but there is nothing to stop a third party from paying the disappointed shareholders. The reason why the purpose failed in each case must be because the lender’s object in making the money available was to save the borrower from bankruptcy in the one case and collapse in the other. But this in itself is not enough. A trust does not fail merely because the settlor’s purpose in creating it has been frustrated: the trust must become illegal or impossible to perform. The settlor’s motives must not be confused with the purpose of the trust; the frustration of the former does not by itself cause the failure of the latter.”[139]

172.  In my view, assuming there was a Quistclose trust, the purpose of the trust did not fail just because the defendant would or could not consult the plaintiff on distribution of the bonus to the staff members.

(a) Undisputed as it was on the evidence, the whole purpose of withholding profits monthly was to prepare for the year-end payment of bonus.   I am of the view that the purpose did not become illegal or impossible to perform in 2015, of course unless the defendant went into liquidation or that all employees of the defendant were dismissed by the Chinese New Year in 2015. None of these happened as far as the evidence disclosed.

(b) The fact that most Team B staff members left the defendant for the plaintiff’s new company did not mean that the stated purpose failed.  Similarly, the fact that Bally Tin and Dennis Kwong, originally of Team B, were dismissed by the defendant soon after the plaintiff’s departure did not mean the stated purpose failed either.

(c) As I have also remarked above that bonuses given to employees were funded differently by Team A and Team B, it could not be argued that the plaintiff’s contribution intended only for the benefit of Team B staff.

173.  I am not convinced by the plaintiff’s argument that the defendant’s inability to strictly comply with the manner of exercising the power in the performance of fulfilling the purpose would defeat the stated purpose of the trust (even if existed).  Hence, even on the assumption that there was a Quistclose trust, its stated purpose did not fail, and the plaintiff was not entitled to the return of his contribution under the Bonus Saving Agreement for the period between January and June 2014.  Also, as I have already found in the earlier paragraphs, I accept the defendant’s version that the relevant bonus had been distributed to the staff members of the defendant before the Chinese New Year in 2015.

174.  For the above reasons, I reject the plaintiff’s claim for his share or contribution for January to June 2014 under the Bonus Saving Agreement, under the notions of implied terms or Quistclose trust.

Issue 7A: Did the plaintiff acted in breach of his fiduciary duties as an agent or otherwise owed to the defendant?

175.  My finding above under Issue 1 is that the parties’ business relationship was one of joint venture as contended by the plaintiff, and not one of agency as contended by the defendant.  This is already sufficient in dismissal of the defendant’s primary case of the plaintiff having breached his fiduciary duties as an agent of the defendant.

176.  It is the defendant’s fallback position that, even in the absence of any express terms on fiduciary duties in the Agreements, the plaintiff still owed fiduciary duties to the defendant regardless of the finding that the plaintiff was a party to a joint venture or an agent.

177.  The respective learned authors of Bowstead and Reynolds on Agency and Chitty on Contracts stated that it is possible to impose fiduciary duties on parties to a joint venture if there can be found the hallmark feature of a fiduciary relationship is one of trust and confidence reposed by the beneficiary in the fiduciary and the beneficiary being in a position of vulnerability subject to the discretion and power of the fiduciary.  The mere fact that a person entrusts another to carry out a job does not necessarily mean there is a fiduciary relationship[140].

178.  It was undeniable that when the plaintiff ran Team B under the defendant’s name he was by his acts able to “bind” the defendant; however, in the defendant’s own case, the plaintiff was a subordinate to Mr Leung who was the ultimate decision maker on all aspects of defendant’s business.  There was simply no evidence from the defendant on being put in a position of vulnerability by the plaintiff’s powers and discretions.  Hence I do not find that any fiduciary relationship arose between the parties being co-venturers nor fiduciary duties could be imposed on the plaintiff, in particular when there was no express term whatsoever on that in the Agreements.

179.  Hong Kong courts are very cautious in recognizing that parties in joint ventures owe fiduciary duties on the basis that commercial parties are expected to act on their interests only in arms-length transactions on equal footing[141]. I have found that the plaintiff was dealing with the defendant as a co-venturer, without more on the facts and the evidence, I am not prepared to find any fiduciary duties arising from the parties’ relationship, and it follows that the plaintiff was not in breach of any.

Issue 7B: If the plaintiff acted in breach of his duties as an agent, was the defendant be entitled to not pay the plaintiff’s share of profits for the period of May to August 2014?

Issue 7C: Whether the plaintiff was liable to repay the defendant the share of profits already paid for the months of May and June 2014?

180.  These 2 issues can be conveniently dealt with together and in substance have already been considered and decided under Issue 4 where I have found that the plaintiff should be entitled to his share of profits for those months of May to August 2014.

181.  In fact I have found that the plaintiff was not an agent of the defendant and did not owe any fiduciary duties to the defendant under the Agreements.  I have also found that the parties entered into the Termination Agreement, of which one of the terms was that the plaintiff was to leave the defendant, effective from 1 September 2014. Accordingly, the parties were obliged to perform the 2^nd Agreement until 31 August 2014, meaning that the defendant was liable to pay the plaintiff’s share of profits up to that date under clause 4 of the 2^nd Agreement.

182.  It is the defence case that, since the plaintiff breached his fiduciary duties as an agent by acting in secret to set up his new company JL Security Limited in competition with the defendant since about May 2014, the plaintiff was therefore not entitled to his share of profits since May 2014.  That argument fails.  First, I have already found that the plaintiff was in a joint venture with the defendant and no fiduciary duties could be implied into the Agreements in view of the parties’ relationship.  Second, for argument’s sake, even if the plaintiff owed such fiduciary duties under the Agreements and breached them, that did not in law automatically lead to termination of the Agreements thereby enabling the defendant to avoid paying the plaintiff’s share of profits for May to August 2014.  The innocent party can only terminate an agreement if the other party breaches a condition which goes to the root of the contract[142]. Breach of fiduciary duties attracts only equitable remedies[143].  The defendant never alleged that the plaintiff could not and did not perform his duties under the Agreements, i.e. to obtain and run contracts assigned to Team B, but only alleged that he breached the alleged fiduciary duties owing to the defendant.

183.  In any event, I do not see any basis on which the defendant can avoid paying the plaintiff and the plaintiff should be deprived of his share of profits from Team B for the months of May to August 2014. The defendant’s counterclaims here fail.

Issue 7D: If the plaintiff acted in breach of his duties as agent, was the plaintiff liable to pay the defendant damages for breach and/or account for the benefit obtained?

184.  The defendant’s case is that the plaintiff was an agent and owed fiduciary duties to the defendant, the fact that the plaintiff since May 2014 had been working to set up his own company, persuading the defendant’s staff to join his new company and taking most of the Team B’s clients to his new company all amounted to breaches of the Agreements, the plaintiff was therefore liable to pay the defendant damages for the breaches and/or account for all the benefits obtained.

185.  The plaintiff denied that he was an agent nor had he owed or breached any fiduciary duties.

186.  I have already found that the plaintiff was not an agent but a party to a joint venture and did not owe any fiduciary duties to the defendant.

187.  I have also found that the parties entered into the Termination Agreement, the terms of which included the plaintiff taking Team B employees and some Team B clients to his new security service company.  On that alone, there is no need to discuss whether the plaintiff was in breach of his implied duties (if any) under the Agreements.

188.  If I am wrong to find that the parties entered into the Termination Agreement, and if I am also wrong to find that the plaintiff did not owe any fiduciary duties to the defendant, I shall consider whether the plaintiff was in breach of the Agreements by breaching, as the defendant alleged, the implied duty to be loyal, not to put himself in a conflict of interest with the defendant and not to use the defendant’s confidential information.  The defendant alleged that there was no Termination Agreement but that the defendant had to terminate the Agreements on discovering the plaintiff’s breaches of implied duties under the 2^nd Agreement.

189.  The main alleged breach of implied duties was the plaintiff taking with him the clients from Team B, except 2 of them which were to remain, upon leaving the defendant.  The first point of reference, as always, is the Agreements.

(a) There was no express term in the Agreements that the clients of Team B belonged to the defendant or that the plaintiff must not engage in competition with the defendant upon termination (commonly known as “restraint of trade” clause).

(b) The key word in clause 1 was “the Manager is to obtain and run the projects” and in clause 4 “Reward = Gross Profit from the Manager’s new project” (emphasis added).

(c) Mr Leung admitted in his live evidence that one corporate client could engage more than one security service provider at any one time, for instance, Hills & Associates awarded security contract to the defendant for its Causeway Bay store and simultaneously engaged G4S for its IFC store; same case for many of the defendant’s clients[144].  In other words, exclusivity between clients and a particular security service company seems not to be the norm in the industry. This may explain why the plaintiff and the defendant, when first discussing the Agreements, never directed their minds and thoughts to such issue and provided for that expressly.  In fact, it was the plaintiff’s uncontradicted evidence that Pricerite awarded security contracts for all their shops as soon as the plaintiff joined the defendant and Mr Leung admitted that the defendant never approached G4S, with whom Pricerite had previously contracted for security services, before Pricerite switched to the defendant[145].

190.  It was not challenged and, it accords with common sense, that in the field of private security services, sourcing clients depends a lot on the service providers knowing the clients personally and having a good relationship, as it was the case for the plaintiff who was valued for his good connections and therefore being attractive to the defendant.  It was Mr Leung’s own evidence that the obtaining of the Hill & Associates contracts was the result of his connection with Mr Mike Groves, its Country Manager[146].  I agree with the plaintiff that, in the absence of an express term agreed by the parties, it would not be correct to imply a term that the plaintiff was not entitled to take clients upon leaving the defendant, either by law or by the alleged common intention of the parties.

191.  The defendant’s other allegations of breach of duties by the plaintiff can be summarised as his actions in preparing his new security company, JL Security Limited, before the termination of the 2^nd Agreement, including preparing to set up office for his new company in the proximity of the defendant’s office, talking to Team B staff about leaving the defendant, soliciting some Team B clients and informing them about JL Security Limited[147].   However, the evidence presented at trial showed that the acts of the alleged breaches were mostly done by other Team B employees for the plaintiff but not by the plaintiff himself.

192.  I pause to remark here that, I do not lose sight of the defendant’s attempt to rely on the statements of 3 employees of the defendant who stated that the plaintiff allegedly solicited them to leave the defendant over a dim sum lunch in July 2014[148]. Nevertheless, none of them were witnesses to come to court to give evidence but only offered their accounts by way of 3 statements, purportedly in relation to a Labour Tribunal matter but it is not clear whether those statements were indeed filed specifically for those proceedings.  It is also unclear as to what exactly happened in that Labour Tribunal case nor is there any information of the involvement of those employees in those proceedings.  More importantly, there is no evidence as to how these employees came to make the statements and the circumstances under which they did so.  For these reasons, I am not prepared to accord any weight to those statements alone.  In the absence of any other evidence on this aspect, I decline to make a finding on the defendant’s allegations of the plaintiff’s soliciting employees of the defendant or instructing them to assist with the setting up of the plaintiff’s own company or other related matters.

193.  In any event, all those allegations by the defendant would pale into insignificance when I find there existed the Termination Agreement where the parties agreed that the plaintiff could leave the defendant effective from 1 September 2014 with Team B staff members and some Team B clients.

194.  As I have found that the plaintiff was a party to the joint venture and not an agent of the defendant, he did not owe or breach any fiduciary duties.  Even if I am wrong on that, I have found that the Termination Agreement existed and its terms included the plaintiff taking Team B staff as well as some of the Team B clients to his new company, which means that there was no breach of any fiduciary duties (even if he owed any).  Even if I am wrong on the existence of the Termination Agreement, I find that there was no breach of the Agreements by the plaintiff himself.  Accordingly, the defendant’s counterclaim on damages on the basis of breach of fiduciary duties fails.

Conclusions as to Liability

195.  I summarise my findings as to liability in this judgment.

196.  In DCCJ 3392/2014, I find that the business cooperation between the parties to be in the nature of a joint venture as pleaded by the plaintiff and not an agency (Issue 1).  I also find that the defendant is liable to pay the plaintiff under the 22 invoices issued between April 2012 and January 2014, each for HK$30,000, totalling HK$660,000 (Issue 2).  Given that the parties agreed that the loan of HK$100,000 previously advanced by the defendant to the plaintiff could be set-off against any relief granted to the plaintiff, I order that the plaintiff’s claim in this action be set-off by HK$100,000.  In other words, in DCCJ 3392/2014, the defendant is liable to pay the plaintiff HK$560,000 (i.e. HK$30,000 x 22 - HK$100,000).  The plaintiff should also be entitled to interest, which I now order to be calculated at judgment rate from the date of the writ until full payment by the defendant.

197.  In DCCJ 3647/2014,

(a) I find that the parties entered into the Termination Agreement, the terms were that the 2^nd Agreement would be terminated on 31 August 2014 and that the plaintiff would take Team B staff as well as some Team B clients to his new company JL Security Limited (Issue 3).

(b) I find that the plaintiff should be entitled to his share of profits for the months of July and August 2014, which should be in the total sum of HK$119,015.24 (Issue 4).  The plaintiff should also be entitled to interest, which I now order to be calculated at judgment rate from the date of the writ until full payment by the defendant.

(c) As to the plaintiff’s claim for his contribution to the Properties, i.e. for the purchase of uniforms, equipment and the vehicle, I do not find that there was an implied term to provide for that in the Agreements and I do not find that the defendant held on trust for the plaintiff his contribution for the same (Issue 5).

(d) Regarding the plaintiff’s claim for the return of half of his contribution towards the savings for staff bonus, I do not find that there was an implied term under the Bonus Saving Agreement to that effect, nor do I find that the plaintiff was entitled to the return of his contribution under the head of a Quistclose trust (if existed) as the stated purpose had not failed (Issue 6).

(e) As to the defendant’s counterclaims, I do not find that the plaintiff owed any fiduciary duties to the defendant as claimed by the defendant; accordingly, all the counterclaims for return of profits for May and June 2014 as well as damages for breach of fiduciary duties fail (Issue 7A-D).

Costs

198.  As a matter of general principle, costs should follow the event.  There is no reason why that general principle should not be followed in these 2 cases.  I therefore made the following costs orders nisi, which shall become absolute in 14 days in the absence of any parties’ objection, as follows.

199.  In DCCJ 3392/2014, the plaintiff succeeds in his claim for the full amount of HK$660,000 under the 22 invoices, and the set-off of HK$100,000 under the unpaid loan was not an issue for argument during these proceedings, the plaintiff should be entitled to all his costs, with certificate for counsel, from the defendant for this action.  I so order.

200.  In DCCJ 3647/2014, I make the following order: -

(a) The plaintiff succeeds in his claims in Issues 3 and 4, namely there existed a Termination Agreement as claimed and that he was entitled to his share of profits for July and August 2014.

(b) The plaintiff also manages to defend against the defendant’s counterclaims under Issue 7.  Nevertheless, that is mainly because of my finding in Issue 1 under DCCJ 3392/2014 where I have found that the business collaboration was a joint venture, for which the plaintiff has already been compensated by costs under my above costs order for DCCJ 3392/2014.   It was indisputable and in fact not disputed that the plaintiff’s actions (e.g. setting up his own new company and all the related preparation like arranging some staff members and clients to leave with him before 1 September 2014), which alleged to be breaches of fiduciary duties by the defence, did happen.  I am of the view that the defendant’s counterclaims here arose logically from his defence against the plaintiff’s main claims in particular under Issue 1 and Issue 3.

(c) It is important to note that Issues 5 and 6, i.e. the claim for contribution towards the Properties and that under the Bonus Saving Agreement, for which the plaintiff fails to prove his case, appear to me to be discrete from the rest of the controversies.  Issues 5 and 6 were far from straightforward as the plaintiff sought to rely on alternative bases of implied terms and trust.  These two issues clearly added a lot to the complexity and the length of the trial, as plenty of financial documents were produced, considerable time was taken up and counsel made lengthy factual and legal submissions in dealing with them.

(d) In view of all these circumstances and as a matter of fairness, I am of the view, notwithstanding the fact that the plaintiff succeeds in some issues here, that it would be just for the plaintiff to pay to the defendant 50% of its costs, with certificate for one counsel, in this action.  I so order.