MAURIZIO DE GASPERIS AND ANOTHER v. SHANGHAI TANG INVESTMENT HOLDING COMPANY LTD AND OTHERS

HCA 1450/2020

[2025] HKCFI 2372

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1450 OF 2020

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J U D G M E N T

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A.  Introduction & The Parties

1.  An agreement to agree has consistently been regarded by the court as being unenforceable. Yet what if the parties, whether as a practical compromise, or in an attempt to balance finality with flexibility or otherwise, expressly fix certain terms while leaving other terms to be agreed later? This half-way approach is one of the main issues in this action, which arises from a contract document entitled the “Separation Terms” executed following the resignation of Mr Maurizio De Gasperis, the 1^st Plaintiff (“Mr Gasperis” or “P1”) as the Chief Executive Officer (“CEO”) of Shanghai Tang Group Limited, the 3^rd Defendant (“D3”). In the pleadings, the Plaintiffs originally sought specific performance, together with damages in lieu of or in addition to specific performance; however, at trial, they expressly abandoned the relief of specific performance and now seek damages only.

2.  The Separation Terms were entered into between (a) Mr Gasperis and his nominee company Elever Limited, the 2^nd Plaintiff (“P2”) (collectively, the “Plaintiffs”); and (b) Shanghai Tang Investment Holding Company Limited, the 1^st Defendant (“D1”), Lunar Capital Management Limited, the 2^nd Defendant (“D2”) and D3 (D1, D2 & D3 collectively the “Defendants”). Dated 13 December 2019, these Terms govern Mr Gasperis’ resignation and the subsequent relationship between the parties.

3.  D1 is incorporated in the British Virgin Islands (“BVI”) and is D3’s parent company.

4.  D2 is incorporated in Hong Kong and provides asset management and advisory services to Lunar Capital funds, which invest in consumer-branded businesses[1].

5.  D3 is incorporated in the BVI and is the parent company of the Shanghai Tang Group, a group of companies that owns and conducts businesses under the trademarks “Shanghai Tang” registered in Australia, Canada, the People's Republic of China, Hong Kong SAR, the European Union, Kuwait, Macau, Russia, Singapore, Switzerland, the United Arab Emirates, and the United States of America (the “Trademarks”)[2].

6.  (a) D1 and D3 and (b) D2 filed two separate defences. They are represented by the same legal team, and there is no suggestion that the contents of their defences differ.

B.  The Main Issues

7.  The principal issues[3] for determination are as follows:

(1)  Issue 1 – Whether D3 breached Part 2 of the Separation Terms by failing or refusing to pay an extra bonus of US$150,000[4]; and if so, what is the appropriate remedy.

(2)  Issue 2 – Whether the Defendants breached Part 3 of the Separation Terms by failing or refusing to:

(a)  enter into an agreement by 1 April 2020 to grant a licence in respect of the new eyewear business; and

(b)  inject US$500,000 into the new eyewear business in the form of equity capital in exchange for a 10% shareholding in the business[5];

and if so, what is the appropriate remedy.

(3)  Issue 3 – Whether Mr Gasperis and the Defendants reached a binding agreement on 2 December 2019 (the “Alleged 2 December 2019 Agreement”)[6]; and if so, whether D1 and D3 breached that Agreement by failing or refusing to grant Mr Gasperis or D2 a licence for the new eyewear business[7] and, on or before 1 April 2020[8], to inject US$500,000 into P2; and if so, what is the appropriate remedy.

(4)  Issue 4 – Whether Mr Gasperis and the Defendants reached a binding agreement on 3 December 2019 (the “Alleged 3 December 2019 Agreement”); and if so, whether D3 breached that Agreement by failing or refusing to pay the Plaintiffs the sum of US$150,000[9]; and if so, what is the appropriate remedy.

C.  Background

8.  The facts set forth in this section are not in dispute.

9.  Mr Gasperis commenced his employment with the Shanghai Tang Group as its Managing Director pursuant to an Employment Contract dated 24 July 2018 signed with Tangs Department Stores Limited.

10.  A few months later, in approximately October 2018, Lunar Capital Partners IV, LP, one of Lunar Capital funds, through its investment vehicle, D1, acquired a majority shareholding in D3.

11.  Following the acquisition, Mr Gasperis was retained as D3’s CEO, and the parties agreed that he would invest US$1 million to acquire a 20% stake in the issued share capital of D3.

12.  On 2 December 2019, Mr Gasperis met with Mr Mao Mao, also known as Jerry Mao, Co-Chairman and Director of D3 and the first witness for the Defendants (“DW1”), to discuss matters relating to his resignation; their discussions continued on 3 December 2019.

13.  On 13 December 2019, the Separation Terms were executed. Further, Mr Gasperis signed a CEO Resignation Letter (Appendix A to the Separation Terms), wherein he irrevocably and unconditionally resigned from his position as D3’s CEO and from all executive and non-executive roles with D3 and its subsidiaries, effective immediately. In the letter, Mr Gasperis further confirmed that, except for any amounts owing to him as set out in the Separation Terms, he has no claims or rights of action whatsoever against D3 or its affiliates arising from or in connection with his office or resignation; that there is no outstanding agreement or arrangement obligating D3 or its subsidiaries to make any payments, whether now or in the future; and that nothing remains owing between him and D3 or its subsidiaries.

D.  Issue 1

D1.  Part 2 of the Separation Terms

14.  The Plaintiffs’ first claim is based on Part 2 of the Separation Terms (“Part 2”), which I shall set out in full:

“Part 2 - Extra Bonus

In addition to the above, SHT Group [i.e. D3] shall pay an amount of USD150,000 by wire transfer in immediately available funds to a USD bank account designated by the Management Shareholder [i.e. P2] as soon as practicable after 28 February 2021 but in any event no later than 1 May 2021, if the losses of SHT Group (on an EBITDA basis and consolidated basis) is less than USD 5,000,000 (for the avoidance of doubt, this will be calculated by reference to the EBITDA margin for the 12 months from 1 March 2020 to 28 February 2021 as evidenced by the management accounts to be provided by SHT Group to the Management Shareholder no later than 30 April 2021).

If there is a dispute between SHT Group and the Management Shareholder with respect to the determination of the EBITDA margin as set out in the management accounts provided by the SHT Group, the final determination of the relevant EBITDA margin shall be made by reference to the audited financial statements of SHT Group for the 2020 and 2021 financial years and any amounts owing by any party pursuant to this Part 2 shall be payable no later than 1 month after the date of the 2021 audited financial statements of SHT Group, which shall be provided to the Management Shareholder and MDG [Mr Gasperis] promptly upon the finalization of such financial statements by the auditors of the SHT Group.”

D2.  The Plaintiffs’ Case on Issue 1

15.  In Ps’ Statement of Claim, the Plaintiffs claim[10] that D3 has not provided P2 with any management accounts for the period from 1 March 2020 to 28 February 2021 (the “management accounts”) and has not paid the Plaintiffs the Extra Bonus of USD150,000. Therefore, D3 breached Part 2, and by reason of such breach, the Plaintiffs suffered a loss in the sum of USD150,000[11]. The Plaintiffs claimed an order for specific performance of the Separation Terms and P2 claimed damages to be assessed in lieu of, or in addition to, specific performance[12].

16.  The Plaintiffs made two assertions[13]:

(1)  The Defendants’ averment, that D3’s losses from 1 March 2020 to 28 February 2021 were approximately USD11,316,912 (which exceeded USD5 million), and that D3 was therefore not liable to pay any Extra Bonus to the Plaintiffs[14], is not tenable because it is a bare averment and the Defendants failed to produce audited financial statements to support it.

(2)  The Defendants’ failure to produce any management accounts by the deadline of 30 April means – under the express terms of the contract – that any alleged losses in excess of USD5 million (and whether or not supported by relevant documentary and testamentary evidence) are wholly immaterial.

17.  In their opening[15], the Plaintiffs expressly and unequivocally abandoned their claim for specific performance. (It should be noted that this abandonment applies not only to their claim regarding the Defendants’ breach of Part 2 under Issue 1 but also to the breach of Part 3 under Issue 2.) Their primary position[16] is to seek contractual damages resulting from the breach of the Separation Terms. Alternatively[17], they seek damages in lieu of specific performance. In the case of Issue 1, the damages sought, whether primarily or alternatively, amount to USD150,000.

18.  In their Closing, the Plaintiffs further relied on the oral evidence of Ms Yan Jingjing, D2’s legal counsel and the Defendants’ second witness (“DW2”) during cross-examination. The Plaintiffs submitted[18] that DW2 accepted that, under Part 2, D3 must pay the Extra Bonus of USD150,000 unless it meets its obligation to provide, by the 30 April 2021 deadline, the management accounts showing a loss of more than USD 5 million for the 12-month period ending 28 February 2021. The Plaintiffs further submitted[19] that, as accepted by her, the plain and objective construction of Part 2 is clear: that the obligation to pay the Extra Bonus by 1 May 2021 is mandatory; that there is no condition precedent; nor is there any obligation whatsoever on the Plaintiffs to provide any evidence as to the losses of D3; and that the only way D3 can avoid payment of the Extra Bonus is by providing the management accounts by the 30 April 2021 deadline.

19.  I find it convenient to interpose and deal with this submission here. Whilst I have doubts as to whether DW2’s evidence constitutes an admission of D3’s breach of Part 2, in my view, it is not necessary to go into the details of what she specifically said in court and whether what she said could be interpreted in the manner that the Plaintiffs have paraphrased it. This is because the Plaintiffs are relying on her evidence to support their interpretation of Part 2, which is a question of law rather than of fact and, accordingly, is not for DW2 to resolve as a factual witness. Therefore, what DW2 said about the proper interpretation of Part 2 is irrelevant.

D3.  The Defendants’ Case on Issue 1

20.  The Defendants’ first contention[20] is that it is open to D3 to provide the management accounts to P2 and if the accounts show that D3’s losses exceed USD5 million, D3 would have discharged all its obligations; and that in any case, the burden is on P2 to show that the condition for the payment of the Extra Bonus is met, and P2 falls short of discharging that burden.

21.  The condition which, in the Defendants’ submissions[21], should be satisfied before D3 is liable to pay the Extra Bonus of USD150,000 is that D3’s losses are less than USD5 million for the period from 1 March 2020 to 28 February 2021, on an EBITDA basis and consolidated basis.

22.  Regarding whether this condition was met, the Defendants submitted[22] that the Plaintiffs did not put forward any evidence to show that D3’s losses are less than USD5 million.

23.  This submission is not fair. Part 2 expressly requires D3 to provide the management accounts for the 12 months from 1 March 2020 to 28 February 2021 to P2 no later than 30 April 2021. As mentioned above, Mr Gasperis resigned from his position as D3’s CEO and from all executive and non-executive roles with D3 and its subsidiaries, effective immediately on 13 December 2019. Plainly, it is not possible for P2, who resigned in December 2019, to obtain from D3 or possess its management accounts for the period from March 2020 to February 2021, which clearly relate to a period after his resignation. No evidence has been adduced to suggest otherwise.

24.  The Defendants also submitted that in the Defendants’ pleadings and witness statement[23], the Defendants have consistently maintained that D3's losses during the relevant period exceeded USD5 million. Thus, P2 is not entitled to the Extra Bonus.

25.  This submission is misconceived. Part 2 requires that the losses during the relevant period be evidenced by the management accounts which must be provided by P3 no later than 30 April 2021. The Defendants’ pleadings and the evidence provided by their witness on D3’s losses are self-serving and insufficient to meet that requirement.

26.  In the Defendants’ Closing Submissions (“Ds’ Closing”), the Defendants confirmed[24] that they do not dispute the fact that Part 2 is binding and enforceable. They also acknowledged[25] that D3 may have breached the obligation by failing to provide the management accounts by 30 April 2021. The central plank of their case is that, on a true interpretation of Part 2, in order to claim the Extra Bonus, the Plaintiffs must show that the condition for the payment obligation is satisfied, namely that the losses are less than USD 5 million for the period between 1 March 2020 and 28 February 2021, on an EBITDA and consolidated basis[26], and that the Plaintiffs could not discharge this burden[27].

27.  The Defendants also raised a pleading issue. They contended that the Plaintiffs’ claim for the Extra Bonus, which amounts to USD150,000 and is an agreed sum, was not sought as relief in the prayer of Ps’ Statement of Claim[28].

28.  All in all, according to the Defendants[29], the obligation to pay the Extra Bonus did not arise because the pre-condition for the payment had not been fulfilled. The non-provision of the management accounts does not mean that such pre-condition has been fulfilled. The pre-condition still needed to be fulfilled. Since it was not fulfilled, the Plaintiffs’ argument based on non-provision of the management accounts would not cause P2 to suffer any additional loss. The consequence is that P2 would not be entitled to claim any real damages or a sum equivalent to the Extra Bonus. In other words, the breach of non-provision, or late provision, of the management accounts would only give rise to nominal damages[30].

D4.  The Defendants’ Last-Minute Disclosure and Application to Adduce Documents

29.  As mentioned in paragraph 26 above, the Defendants acknowledge that D3 has a legally binding obligation under Part 2 to provide P2 with the management accounts on or before 30 April 2021 for the purpose of calculating the losses of D3 (on an EBITDA and consolidated basis) by reference to the EBITDA margin for the 12 months from 1 March 2020 to 28 February 2021; and D3 has failed to do so, in breach of Part 2. The evidence of DW2 confirmed that this is the position. She told the Court that The Defendants’ failure to provide the Plaintiffs with the relevant management accounts was the Defendants’ “oversight”[31].

30.  The trial of this action was scheduled to start on 21 October 2024. On 23 September 2024, about 4 weeks before the trial, the Defendants filed and served a Supplemental List of Documents, disclosing 3 items of documents, namely:

“3. Consolidated Profit and Loss statement of the 3^rd Defendant for financial period 1 March 2020 – 28 February 2021

4. Consolidated Profit and Loss statement of the 3^rd Defendant for financial year ended on 31 December 2020

5. Consolidated Profit and Loss statement of the 3^rd Defendant for financial year ended on 31 December 2021” (collectively “3 Profit and Loss Statements”).

31.  The Plaintiffs strongly opposed the Defendants’ proposed reliance on the 3 Profit and Loss Statements at trial. Consequently, the Defendants took out a summons dated 2 October 2024 (the “Defendants’ Summons”) seeking leave to adduce those documents. The application is supported by an affirmation of DW1 (“DW1 Affirmation”).

32.  The Defendants’ counsel repeatedly referred to the 3 Profit and Loss Statements as the management accounts[32], and submitted that D3 had provided the Plaintiffs with the management accounts (by these (three-page) 3 Profit and Loss Statements on 23 September 2024 “in performance of Part 2 of the Separation Terms”, which “conclusively shows that D3’s loss during the relevant period was USD 11,316,912 (and USD 9,540,731 on an EBITDA basis), meaning that P2 is not entitled to the extra bonus”[33].

33.  At the beginning of the trial, I allowed the 3 Profit and Loss Statements to be admitted on a de bene esse basis. After hearing the evidence and the parties’ submissions, I have decided that the Defendants should not be allowed to adduce the 3 Profit and Loss Statements, and the Defendants’ Summons is dismissed with costs, for the reasons explained below.

34.  Firstly, it is not apparent that the 3 Profit and Loss Statements are indeed, or constitute, the management accounts.

35.  In terms of description, as recited in paragraph 30 above, the Defendants’ Supplemental List of Documents describes the 3 Profit and Loss Statements as consolidated profit and loss statements rather than as management accounts.

36.  In terms of contents, the 3 Profit and Loss Statements are each a one-page document, all undated and unsigned. Each contains financial figures without any accompanying particulars or explanations regarding the basis, derivation, or calculations of these figures. For illustration, the full text of the “Consolidated Profit and Loss statement of the 3^rd Defendant for financial period 1 March 2020 – 28 February 2021” is reproduced as follows:

“	Shanghai Tang Group Limited …
	Consolidated Profit and Loss
	Financial period 1 March 2020 – 28 February 2021
		USD
	Sales	12,538,771
	Gross profit	7,738,067
	GP%	62%
	Gross Profit (after prov	9,641,782
	GP% (after provision)	77%
	Logistics	81,642
	Payroll	6,295,523
	Rent	7,749,178
	Security & Services	856,605
	Fees	2,187,579
	Selling expenses	1,534,308
	Marketing	1,411,914
	Others	(934,236)
	Total SG&A expenses	19,182,513
	EBITDA	(9,540,731)
	Depreciation	1,775,066
	tax	1,115
	OP (loss)	(11,316,912)	”

37.  On this basis, I find it difficult to regard these documents as constituting “management accounts”. The label “Consolidated Profit and Loss” implies that they are a single financial statement. However, there is nowhere in the evidence explaining whether such a single financial statement like the 3 Profit and Loss Statements is the same as management accounts, which by its name suggest a broader package of financial and management or operational reports compiled for internal business decision-making, and whether management accounts would or would not normally incorporate additional features such as cash flow forecasts, balance sheet summaries, budget versus actual comparisons, key performance indicators. The Defendants may argue that such additional information is unnecessary for calculating the loss of D3. However, in my view, Part 2 does not limit the provision to only an extract of the management reports pertinent to the loss calculation. It expressly requires “the management accounts” to be provided by D3 to P2. The Defendants’ counsel did not draw to my attention any evidence showing or explaining the notion that a profit and loss statement is equivalent to management accounts.

38.  Moreover, notwithstanding the Defendants’ repeated references and heavy reliance, nowhere in their submissions did they explain why a one-page profit and loss statement can be taken for granted as “management accounts”.

39.  Secondly, even assuming the 3 Profit and Loss Statements are the “management accounts” required under Part 2 (which I doubt for the reasons explained above), the disclosure of the management accounts is dubiously incomplete.

40.  In paragraph 8 of DW1’s Affirmation and its exhibit “MM-3”, which was served on the Plaintiffs on or about 2 October 2024, after the Defendants’ Supplemental List of Documents was served on or about 23 September 2024, the Defendants disclosed, again for the first time, additional “management accounts”. DW1 described them as “such management accounts for the group for the years 2020 and 2021”. These appear to refer to “various management accounts for the group on a monthly basis”, prepared “so that the performance of the Group and its constituent parts can be monitored by the management”. DW1, however, stated that, “The figures in such accounts are not the same as that in the Management Accounts as the latter were prepared based on audited accounts of the 3^rd Defendant's underlying operational entities.” He further asserted that in either “version” of D3’s “management accounts”, D3’s losses on an EBITDA basis and consolidated basis would exceed US$5 million. Neither DW1 nor the Defendants’ counsel explained why the Defendants did not include these additional “management accounts” (MM-3) in the Defendants’ Supplemental List of Documents.

41.  I find these matters perplexing. Part 2 does not specify whether the management accounts required to be provided to the Plaintiffs should be prepared on a yearly or monthly basis. The Defendants’ own evidence shows that there are at least two “versions” of the management accounts, even if the 3 Profit and Loss Statements are indeed considered to be “management accounts”. These two “versions” yield different figures and are derived from different sources. However, the Defendants now seek to adduce only one set of figures, omitting the other, and appears to avoid addressing these inconsistencies and ambiguities by broadly asserting that a material loss has been incurred. Notwithstanding that both versions appear to indicate a loss in excess of USD 5 million, such evidence cannot conclusively establish the loss calculation, nor does it preclude the Plaintiffs’ rights to scrutinize, dispute, and require production and examination of D3’s audited financial statements for the 2020 and 2021 financial years pursuant to the mechanism set out in Part 2.

42.  In my view, this is wholly unacceptable for the Defendants to discharge their disclosure duties, whether under the Rules of the High Court or the Separation Terms. Allowing the Defendants to disclose the 3 Profit and Loss Statements in this manner at the eleventh hour is not conducive to the just resolution of the dispute in question in this action, see Kinetic Medical Health Group Company Limited & ors v Dr Tse Ivan Cheong Yau (unreported, HCA 115/2010, 8 May 2013), paragraph 49(a) per DHCJ Marlene Ng.

43.  Thirdly, I find the explanation given by DW1 for the late discovery of the 3 Profit and Loss Statements wholly unacceptable.

44.  In DW1 Affirmation[34], he gave two reasons purporting to explain why the management accounts were not produced earlier:

(1)  The Defendants believed that the Plaintiffs were fully aware of D3’s business performance and that its losses, on an EBITDA and consolidated basis, could not have been less than US$5 million.

(2)  The Defendants inadvertently failed to do so because the claim for specific performance of Part 2 was only introduced in the Plaintiffs’ Re-Re-Re Amended Statement of Claim filed on 13 May 2022.

45.  These reasons are entirely misconceived as they blatantly ignored D3’s unconditional obligation to provide the management accounts no later than 30 April 2021 under Part 2. Whether the Plaintiffs were aware of D3’s business performance is irrelevant to this obligation. It is their right to receive the management accounts expressly agreed to by the Defendants in Part 2.

46.  As mentioned in paragraph 29 above, DW2’s reason for the failure to provide the management accounts was “definitely oversight”.

47.  Nonetheless I have doubts as to whether the non-provision was indeed merely an oversight, given that (a) the management accounts contain important business data, since, as DW1 noted in his Affirmation, they enable the Defendants’ management to monitor “the performance of the Group and its constituent parts”, (b) the express requirement for the provision of the management accounts in Part 2 is very clear, and (c) the Defendants were of course well aware that they are in litigation with the Plaintiffs, and are being advised by both in-house counsel (DW2) and external lawyers acting for them in this action. Even if they missed the deadline of 30 April 2021 to provide the management accounts, they should not have ignored their duty of discovery in the action for such a long time until the near beginning of the trial.

48.  Inadvertence is, therefore, in my view, no convincing explanation for the Defendants’ failure to both provide and disclose the management accounts until the eleventh hour.

49.  Fourthly, given the foregoing observations, I agree with the Plaintiffs’ counsel that allowing the 3 Profit and Loss Statements to be adduced would cause clear and significant prejudice to the Plaintiffs. The Plaintiffs simply were not given any reasonably sufficient time and opportunity to investigate the inconsistencies, the ambiguities, the propriety, and the accuracies of the 3 Profit and Loss Statements, as well as the completeness of the disclosure by the Defendants.

50.  For the above reasons, the Defendants’ Summons is dismissed. I also make an order nisi for costs of the Summons be forthwith paid by the Defendants to the Plaintiffs, which I summarily assessed[35] at HK$72,780.

D5.  Discussion on Issue 1

51.  The modus operandi of Part 2 appears to me to be as follows:

(1)  The loss of D3 (on an EBITDA and consolidated basis) shall be calculated by reference to the EBITDA margin for the 12 months from 1 March 2020 to 28 February 2021, as evidenced by the management accounts.

(2)  D3 is required to provide the management accounts to P2 no later than 30 April 2021.

(3)  If D3’s loss is less than USD 5 million, D3 shall pay P2 an Extra Bonus of USD150,000 as soon as practicable after 28 February 2021, but in any event no later than 1 May 2021.

(4)  If there is a dispute as to the determination of the EBITDA margin as set out in the management accounts provided by D3, the final determination of the EBITDA margin shall be made by reference to D3’s audited financial statements for the 2020 and 2021 financial years.

(5)  D3 shall provide its audited financial statements to the Plaintiffs promptly upon finalization by D3’s auditors, and any amount owing pursuant to Part 2 shall become payable no later than 1 month after the date of D3’s 2021 audited financial statements.

52.  As can be seen from (4) above, the Plaintiffs have the right to (a) consider the management accounts received from D3 and (b) check, verify and challenge the EBITDA margin as set out therein. If the Plaintiffs so challenge, D3 is obliged to produce its audited financial statements to the Plaintiffs once finalized by its auditors.

53.  In the present scenario, after all the twists and turns, the Defendants have accepted that D3 breached Part 2 of the Separation Terms by failing to provide the management accounts by 30 April 2021.

54.  Without the management accounts, the Plaintiffs are precluded from disputing the actual amount of D3’s loss. Having expressly abandoned the remedy of specific performance at trial, the Plaintiffs are now left with no effective means to compel D3 to furnish the management accounts.

55.  However, it would be erroneous for the Plaintiffs to contend that the Extra Bonus of USD150,000 becomes immediately payable solely by virtue of D3’s failure to provide the management accounts. The plain meaning of Part 2 is unambiguous: D3 “shall pay an amount of USD150,000 … if the loss of [D3] … is less than USD5,000,000”. Thus, the payment obligation for the Extra Bonus is triggered only if D3’s loss is demonstrated to be less than USD5 million – that is, the requisite condition precedent. To assert otherwise, that D3 shall pay P2 USD150,000 unless it produces the management accounts by 30 April 2021 showing that its loss is more than USD5 million, is to rewrite Part 2 in a manner that is contrary to its clear terms.

56.  Absent the management accounts and the evidence of D3’s loss contained therein, it is impossible to determine whether the condition precedent for the payment of the Extra Bonus has been met.

57.  Accordingly, it cannot be held that the Plaintiffs’ loss, arising from D3’s breach of Part 2 by failing to provide the management accounts, amounts to the Extra Bonus of USD150,000.

58.  It is unfortunate that the Plaintiffs abandoned the remedy of specific performance. Had they pursued that remedy, they might have compelled D3 to provide a full and proper set of the management accounts, enabling them to ascertain whether the required condition for the payment of the Extra Bonus had been satisfied.

59.  In other words, D3’s failure to provide the management accounts does not give rise to a quantifiable loss in the amount of USD150,000 under Part 2 as alleged by the Plaintiffs’ counsel. The Plaintiffs’ claim for USD150,000, whether as damages for breach of Part 2 or as damages in lieu of specific performance, therefore fails. In the absence of evidence of any alternative heads of damages, the only conclusion which this Court can reach is, as submitted by the Defendants, that only nominal damages are warranted.

D6.  Conclusion on Issue 1

60.  The Plaintiffs’ claim against the Defendants for D3’s breach of Part 2 succeeds but only to the extent of D3’s failure to provide the management accounts. Their claim for damages, or damages in lieu of specific performance, in the amount of USD150,000 must accordingly fail, with only nominal damages being granted.

E.  Issue 2 – Liability

E1.  Part 3 of the Separation Terms

61.  Part 3 of the Separation Terms (“Part 3”) reads as follows:

“Part 3 - Licensing agreement in respect of the eyewear business (New Business)

The Majority Shareholder and SHT Group shall grant a license to MDG and his nominee company in respect of the eyewear business for a period of 5+5 years, the terms of which will be set out in a license agreement (on terms to be agreed) entered into by SHT Group, the Majority Shareholder, MDG and his nominee, such agreement to be entered into no later than 1 April 2020. The Majority Shareholder and SHT Group agree that no royalties shall be payable by MDG and his nominee company for the first 3 years of the license term, and a 8% royalty shall be payable by MDG and his nominee company commencing from the 4^th year of the license term.

On or before 1 April 2020, Lunar Capital or Majority Shareholder (or anyone designated by Lunar Capital) shall inject USD500,000 into the New Business in the form of equity capital in exchange for a 10% interest in the eyewear company incorporated by MDG or his nominee company.”

62.  No licence was granted. No licence agreement was signed. And no equity capital was injected. I shall first set out the relevant facts before addressing the issue.

E2.  The Falling Through of Negotiation

63.  The narrative set out below is drawn from both the Plaintiffs’ submissions[36] and the Defendants’ submissions[37]:

(1)  On 13 December 2019, the Separation Terms were signed.

(2)  On 23 January 2020, Mr Gasperis met with Mr Stanley Chu of D2 (“Mr Chu”) and DW1. Subsequently, he emailed them a business plan for the new eyewear business (the “Business Plan”) and a draft licence agreement (“Ps’ 23 January 2020 Draft”). The material terms of this draft include:

(a)  Exclusivity – the grant of an exclusive licence from D3 to P2 to use D3’s Shanghai Tang Trademarks in the “manufacturing, sale, distribution, advertising, marketing and promotion of optical frames, sunglasses, goggles, readers, eyewear cases”,

(b)  Worldwide Coverage – that the exclusive licence covers “all countries and regions in the world”,

(c)  D3’s Obligation to Contribute Marketing Expenses – imposing on D3 an obligation to contribute an amount not less than five percent (5%) of net sales achieved during the relevant period to the advertising, promotion and marketing of the products,

(d)  Exclusive Right to Appoint Distributors – the grant to P2 and its affiliates of an unqualified right (i) to appoint distributors and (ii) to grant such distributors the exclusive or non-exclusive rights to advertise, market, promote and sell the products in territories to be defined by P2, and

(e)  Right to Sublicence – the granting of the right to P2 to sublicence “partially or entirely” its rights and obligations, subject to informing D3 in writing.

(3)  On 10 February 2020, Mr Chu emailed Mr Gasperis (with copy to DW1) explaining D3’s comments on Ps’ 23 January 2020 Draft, which included D3’s intention to grant only a sole licence, as opposed to an exclusive licence, to P2.

(4)  In subsequent email exchanges between Mr Gasperis and Mr Chu, D3 expressed its disagreement with the terms in Ps’ 23 January 2020 Draft – including those terms which, in the Plaintiffs’ view, had already been agreed between the parties and incorporated in Part 3 (such as the royalty-free period for the first 3 years of the licence term and an 8% royalty payable by Mr Gasperis to D3 from the 4^th year of the licence onwards).

(5)  On 11 February 2020 and 18 February 2020, Mr Gasperis sent several follow-up emails to Mr Chu, requesting a finalized licence agreement.

(6)  On 23 February 2020, Mr Chu emailed to Mr Gasperis (copied to DW1) and attached D3’s draft licence agreement (“Ds’ 23 February 2020 Draft”). This draft contained terms which the Plaintiffs did not agree to and, in their view, were contradictory to the terms agreed and incorporated in Part 3. The material terms of this draft include:

(a)  No exclusivity – the grant of a sole licence[38], under which D3 retains “the full rights to exercise the licensed rights”,

(b)  Restrictions on the Use of the Trademarks - P2’s right to use the Trademarks is subject to (1) it not co-branding the products and (2) it not creating a unitary composite mark involving one of the Trademarks,

(c)  Conditions for Renewal after the first 5 years – P2’s right to extend the licence into the second 5-year term is subject to the satisfaction of a Minimum Royalty Requirement and Business Plan Conditions,

(d)  Removal of D3’s Obligation to Contribute Marketing Expenses,

(e)  Royalty Rates from the 4^th year of licence – imposing payment of a fixed royalty for the fourth contract year, with a minimum of 10% increase on such royalty for each subsequent contract year, and

(f)  D3’s Right to Terminate the Licence within the first 5-year term – affording D3 the right to terminate the licence before the end of the first 5-year term (i) with 3-month prior written notice if D3 sells or otherwise divests its Business and enters into an alliance, joint venture or similar arrangement, and (ii) with 30-day prior written notice if P2 fails to meet the Business Plan Conditions or the Minimum Royalty Requirement.

(7)  On 25 February 2020, in response to Ds’ 23 February 2020 Draft, Mr Gasperis sent an email to Mr Chu and DW1 indicating his disagreement with D3’s revised licence terms and requesting an in-person meeting. No reply was received by him.

(8)  On 25 March 2020, Mr Chu emailed Mr Gasperis (copied to DW1), attaching another draft licence agreement (“Ds’ 25 March 2020 Draft”). This draft contained terms which, in the Plaintiffs’ view, were (a) contradictory to those already agreed and set out in Part 3 and (b) even more onerous and impracticable than the new terms proposed by the Defendants in earlier drafts. Such terms included:

(i)  the granting of a “non-exclusive” licence, as opposed to an “exclusive” licence,

(ii)  a requirement that product samples be subject to the licensor's final approval, and

(iii)  a requirement for the purchase of Shanghai Tang's existing inventory at a 50% premium.

(9)  On the same day, Mr Gasperis sent a 4-page draft licence agreement to Mr Chu (copied to DW1) by email (the “4-page Draft Agreement”). The Plaintiffs maintain that this draft contained all the essential terms previously agreed between the parties and could have been executed “as is”. The material terms of the 4-page Draft Agreement include:

(a)  Exclusivity – ousting D3’s right to exercise the licensed rights,

(b)  Removal of the said Restrictions on P2’s Use of the Trademarks, and

(c)  Removal of All Conditions for Renewal after the first 5 years – thereby rendering the renewal of the second 5-year licence term automatic and unconditional.

(10)  On the same day, Mr Chu replied to Mr Gasperis via email, stating that certain clauses could not be deleted as they were necessary “to protect the interests of the SHT company [D3]”, and requested Mr Gasperis to review the 4-Page Draft Agreement.

(11)  On 26 March 2020, DW2 informed P1’s lawyer by email that D3 did not accept the 4-Page Draft Agreement and opined that it was not reflective of the market standard.

(12)  On 30 March 2020, Mr Gasperis emailed DW2 (copied to Mr Chu and DW2) rejecting the Ds’ 25 March 2020 Draft and sending another draft licence agreement (“Ps’ 30 March 2020 Draft”), urging the Defendants to execute a licence agreement before the 1 April 2020 deadline under Part 3. In this draft, Mr Gasperis continued to insist on the exclusivity of P2’s use of the Trademarks to the exclusion of D3 and its right to sublicence, although he accepted a lesser restriction on the use of the Trademarks (namely, that P2 shall be entitled to use the Trademarks provided that it does not create a unitary composite mark involving one of the Trademarks).

(13)  On the same day, DW2 replied to Mr Gasperis, stating that they “do not agree that your [Mr Gasperis’] proposed terms are industry standard.” DW2 queried whether Mr Gasperis would accept (a) the current version of the licence agreement (i.e. Ds’ 25 March 2020 Draft) and (b) capital injection in the form of preference shares with redemption right and P1’s personal guarantee; failing which, DW2 expressed the view that no agreement had been reached regarding the eyewear licence.

64.  Consequently, the negotiation fell through. It is common ground that the Plaintiffs neither established a new eyewear business nor set up any company for that purpose.

E3.  The Plaintiffs’ Case

65.  The Plaintiffs made 2 claims under Part 3 against the Defendants[39]. Firstly, in breach of Part 3, D1 or D3 has failed to grant P1 or P2 a licence in respect of the Plaintiffs’ new eyewear business. Secondly, D1 and D2 have failed to inject USD 500,000 into P2 on or before 1 April 2020 (in exchange for 10% of the shares in P2) in order for P2 to conduct the new eyewear business.

66.  The Plaintiffs plead[40] that under the Separation Terms, D1 and/or D3 would grant or cause to be granted to P1 and P2 an exclusive licence to run the new eyewear business. However, in this plea the Plaintiffs fail to specify the legal basis for such exclusivity – for example, whether it arises from an express term, an implied term, or otherwise – nor do they set out the material facts in support thereof.

67.  The Plaintiffs submit[41] that, upon the proper construction of Part 3, the following obligations are imposed on the parties:

(1)  D1 and D3 shall grant a licence to P1 and his nominee company in respect of the eyewear business for a period of “5+5” years.

(2)  The essential and non-essential terms of this licence shall be set out in a licence agreement entered into by D1, D3, P1 and his nominee company.

(3)  Such licence agreement shall be entered into no later than 1 April 2020.

(4)  No royalties shall be payable by P1 and his nominee company for the first 3 years of the licence term.

(5)  A royalty of 8% shall be payable by P1 and his nominee company commencing from the 4^th year of the licence term.

(6)  On or before 1 April 2020, D1, D2 or anyone designated by D2 shall inject USD500,000 into the eyewear business in the form of equity capital in exchange for a 10% interest in the eyewear company to be incorporated by P1 or his nominee company.

68.  In the Plaintiffs’ contention[42], the terms set out in Part 3 mirror and reflect the binding essential terms that had already been agreed P1 and DW1 in the Alleged 2 December 2019 Agreement. Those terms were set out in P1’s two emails to DW1 both issued on 2 December 2025:

(1)  The first email:

“Dear Jerry,

Following our today's meeting I would like to recap your proposal.

You asked me to resign for "personal reason" and my last day will be March 1^st, 2020.

In exchange, the conditions proposed for the above will be the following:

…

3 - A licensing agreement for the eyewear business will be granted to me for a period of 5+5 years. The first 3 years will be free of royalty while from Y4 a 8% royalty will apply. You will inject US$500k in the form of Loan (no interest) or Investments. The licensing agreement must be formalised within 1 March 2020 [Note: which was subsequently extended by one month to 1 April 2020 in Part 3].

…

Please confirm the above understanding is correct so we can finalise the discussion.

Regards,

Maurizio”

(2)  The second email:

“Dear Jerry,

As just discussed, in addition to my previous email, my understanding is the following:

…

Regarding point 3, the US$ 500k for the eyewear business will be injected in the licensee company within 1 March 2020 in exchange of 10% of shares.

Please confirm the above understanding is correct within today.[sic] I can provide by feedback by tomorrow AM.

Regards,

Maurizio”

DW2 replied to these two emails in one email, stating, “OK”.

69.  The Plaintiffs claim[43] that as D1 and D3 have repeatedly produced draft licence agreements that deviated from the Separation Terms, they have, a fortiori, breached Part 3. Additionally, or alternatively, the Defendants also breached Part 5 of the Separation Terms, which requires them to use “all reasonable efforts” to satisfy their mandatory obligations under the Separation Terms[44]. They have failed[45] to negotiate the proposed license agreement in good faith and with all reasonable efforts.

E4.  The Defendants’ Case

70.  Regarding proper interpretation of Part 3, the Defendants advanced a primary position and an alternative position.

71.  The Defendants’ primary position[46] is summarized as follows:

(1)  Properly construed, Part 3 is an agreement to agree, which is unenforceable. The provision is not sufficiently complete and certain to be enforceable in law[47].

(2)  At most, Part 3 of the Separation Terms imposes an obligation on D1 and D3 to use reasonable efforts to negotiate the terms of a licence agreement to be granted to the Plaintiffs.

(3)  The obligation to provide a capital injection of USD 500,000 is conditional upon a licence agreement having been reached by the parties in respect of the eyewear business. Without the reaching of the licence agreement, there can be no “New Business” for D1 or D2 to make any capital injection.

72.  Their alternative position[48] is: if Part 3 imposes an enforceable obligation on the Defendants to grant the Plaintiffs a licence, the text of Part 3 together with the relevant factual matrix show that D3 is only required to grant or use all reasonable endeavours to grant a non-exclusive licence to P2.

E5.  Discussion on Issue 2

E5(1)  Interpretation of the first paragraph of Part 3

73.  I shall first address the interpretation of Part 3.

74.  In my judgment, properly construed, the first paragraph of Part 3, which concerns the licence to be granted by D1 and D3 to P1 and his nominee company in respect of the eyewear period, constitutes an agreement to agree. The terms in the first paragraph of Part 3 is insufficiently certain to form a workable licence agreement. As such, the first paragraph of Part 3 is not enforceable.

75.  In my view, it is determinative that the essential terms of the licence to be granted by D1 and D3 to the Plaintiffs are missing from Part 3.

76.  The first paragraph of Part 3 mandates the following terms of the licence which have been agreed between the parties, but unfortunate no more:

(1)  The licence is “in respect of the eyewear business”.

(2)  It is “for a period of 5+5 years”.

(3)  For the first 3 years of the licence term, no royalty shall be payable. Commencing from the 4^th year of the licence term, a 8% royalty shall be payable.

I shall refer to these 3 terms as the “3 Agreed Terms” below.

77.  Part 3 and the remainder of the Separation Terms do not mention any other terms of the licence which have been agreed between the parties. Rather, the first paragraph of Part 3 states that the terms of the licence “will be set out in a licence agreement (on terms to be agreed)”.

78.  Although, as pointed out by the Plaintiffs[49], Part 3 requires that a licence “shall” be granted, and that the licence agreement was “to be entered into no later than 1 April 2020”, if the parties are unable to agree on additional terms, the only remaining terms (at least on their face) are the 3 Agreed Terms. If what remain in Part 3 are not enforceable such that a licence cannot be granted, then they will remain so notwithstanding the mandatory use of “shall”.

79.  The Plaintiffs’ submissions[50] contend that the essential terms relating to the eyewear licence and the eyewear business are already contained in Part 3. Accordingly, Part 3 is binding and enforceable. Terms of the licence agreement which are said “to be agreed” in the first paragraph of Part 3 are non-essential terms that do not detract the binding nature of Part 3.

80.  I reject the Plaintiffs’ submissions, for the reasons below.

81.  Firstly, as demonstrated by the negotiations set out in in Section E2 above, there were many terms that were not agreed between the parties. In my judgment, as shall be explained below, these outstanding terms include material terms. They include:

(1)  Exclusivity – This refers to whether the Plaintiffs’ use of the Trademarks under the licence is to be exclusive (i.e. even the Defendants are excluded from using the Trademarks in the eyewear business and related products), non-exclusive, or subject to a hybrid arrangement (for example, a sole licence, or an exclusive licence in which the grantor retains certain restricted rights – for instance, as mentioned in Section E2 above, whereby P2’s right to use the Trademarks is subject to a prohibition on co-branding the products and on creating a unitary composite mark involving any of the Trademarks, or alternatively a non-exclusive licence subject to stipulated limitations on the grantor’s use);

(2)  Territorial limits or the territorial scope – This refers to the specific territories covered by the licence and any accompanying restrictions on its use within each territory;

(3)  Right to Sublicence – This refers to whether the Plaintiffs have the right to sublicence D3’s Trademarks to third parties; and if so, on what terms, and whether the sublicence is subject to any substantive and/or procedural conditions or restrictions; and

(4)  Right to Appoint Distributors – This refers to whether the Plaintiffs have the right to appoint distributors; and if so, the extent of that right – including the authority to advertise, market, promote and sell the eyewear products within the territories covered by the licence – and, if so, on what terms, including whether such rights are to be exercised on an exclusive or non-exclusive basis and whether both the rights granted and the distributor appointment process are subject to any substantive and/or procedural conditions or restrictions.

82.  In my view, these outstanding terms, particularly the element of exclusivity, cannot be regarded as non-essential terms; indeed, they are essential. Without these material terms, the licence agreement is simply unworkable. Such terms have a significant effect of either positively enhancing or adversely diminishing the value of the rights under the licence. In other words, these terms have material financial and commercial impacts on the new eyewear business. Without clearly delineating the parties’ rights and obligations in these areas, the new eyewear business proposed the Plaintiffs simply cannot be commenced or sustained.

83.  To illustrate with an example, if the licence does not expressly require that the Plaintiffs secure an exclusive licence, thereby preventing D3 or any third party from using the Trademarks in connection with the new eyewear business, competing operators may be permitted to use the Trademarks concurrently. This would undoubtedly jeopardise the commercial viability of the new eyewear business. In other words, a licence for the Trademarks cannot be granted without expressly defining the exclusivity of their use, as uncertainty in this regard create serious commercial risks.

84.  As a matter of fact, as also mentioned in paragraph 63(13) above, this is one of the reasons why the negotiations failed, as illustrated by Mr Gasperis’ own words[51]:

“The granting of a “non-exclusive” license, when previous drafts made it clear that the license was exclusive. Such wording would change the deal completely, as a non-exclusive license would open me up to competition from Lunar and Shanghai Tang themselves. Jerry [DW1] had previously made it clear to me that Shanghai Tang wanted only me to deal with eyewear going forward.”

I should comment here that Mr Gasperis’ last sentence above (i.e. “Jerry [DW1] had previously made it clear to me that Shanghai Tang wanted only me to deal with eyewear going forward.”), even on its face value, is vague. It could mean that the only business in which D3 would be willing to deal with Mr Gasperis in future is eyewear. At the very least, it does not necessarily mean that D3 promised to grant Mr Gasperis an exclusive licence. This is particularly so given (1) Mr Gasperis would no longer be an employee of D3, (2) the new eyewear business was intended to be Mr Gasperis’ own business, and naturally he would prefer his own interest over those of D3, and (3) the Defendants would only be a minority shareholder holding a 10% interest in Mr Gasperis’ new eyewear company.

85.  For the avoidance of doubt, I should make it clear that it has never been the Plaintiffs’ contention that the licence can be granted without specifying whether its nature is exclusive or non-exclusive. The Plaintiffs’ case is premised solely on the assertion that the licence must necessarily be exclusive, as mentioned in paragraph 66 above: D3 is obliged to grant an exclusive licence to the Plaintiffs. The difficulty for the Plaintiffs is always in establishing on what basis the licence must necessarily be exclusive.

86.  For convenience, I shall refer to the outstanding essential terms mentioned above as the “Outstanding Essential Terms” hereafter.

87.  Secondly, I find that none of the Outstanding Essential Terms have been incorporated into Part 3, either expressly or impliedly.

88.  The starting point is the express wording in the Separation Terms. As noted above, the 3 Agreed Terms are the only terms expressly agreed in Part 3. The term “exclusive” – and indeed any language indicating exclusivity under the licence – does not appear in Part 3 or elsewhere in the Separation Terms. Similarly, terms such as “territory”, “sublicence” and “distributor” do not appear.

89.  The Plaintiffs have not pleaded any case to establish why the essential terms are already contained in Part 3, as mentioned in paragraph 66 above. Although the Plaintiffs have pleaded that the nature of the licence to be granted for running the new eyewear business is exclusive, the Plaintiffs have failed to plead the legal basis for such exclusivity, for example, whether it arises from an express term, an implied term, or otherwise.

90.  As mentioned in paragraph 68 above, in their submissions, the Plaintiffs rely on the email exchange between Mr Gasperis and DW1 on 2 December 2025 and suggest that the terms set out in Part 3 mirror and reflect the binding essential terms that had already been agreed P1 and DW1 in the Alleged 2 December 2019 Agreement. This suggestion is misconceived. The emails do not assist the Plaintiffs. As set out in paragraph 76 above, in those emails, in respect of the licence to be granted, only the 3 Agreed Terms were mentioned. No reference was made to any of the Outstanding Essential Terms in the communications between Mr Gasperis and DW1. In any event, I agree with the Defendants that these emails constitute pre-contractual negotiations preceding the Separation Terms and are therefore not admissible for the purposes of construing Part 3, see Channel Green Ltd v Huge Grand Ltd [2025] 1 HKLRD 655 at 669, paragraph 34 per Lam V-P (as Lam PJ then was). The Plaintiffs did not dispute the Defendants’ proposition. The only complaint they raise is that this point has not been pleaded. I dismissed this complaint because admissibility of evidence is a question of law that does not necessarily need to be pleaded and given that this point had been put to strict proof in the Defendants’ pleadings[52], the Defendants is entitled to object admissibility as a matter of principle. In any case, this Court does not consider it proper to admit a piece of evidence that is inadmissible in law, solely because the objection was not pleaded.

91.  The Plaintiffs further relied on what they term as “factual matrix”, namely (1) the discussions and negotiations leading up to the Alleged 2 December 2019 Agreement and DW1’s direction to DW2 and an officer Peter on 9 December 2019[53]; and (2) a reiteration by DW1 in a text message to Mr Gasperis on 11 December 2019[54] in support of the assertion that the agreement contains all the essential terms, particularly that it was always for an exclusive licence agreement[55]. I fought with great difficulty on this reliance. Leaving aside the question of admissibility which I have discussed above, I cannot find from the references to these “factual matrices” in the Plaintiffs’ submissions that any of the Outstanding Essential Terms were ever discussed or, directly or indirectly, alluded to between the parties.

92.  The Plaintiffs assert that it makes no commercial sense for D3 to grant a non-exclusive licence in competition with the new eyewear business, in light of D3's 10% equity stake in the business[56]. I reject this assertion. I cannot see why it would be commercially nonsensical for D3 to grant a non-exclusive licence to the Plaintiffs and invest in their company with a 10% equity stake. On the contrary, DW1’s evidence[57] suggests that if the Plaintiffs’ eyewear products are of poor quality and their sales are inadequate, D3 could proceed with the eyewear business on its own – an option available should the Plaintiffs run the new eyewear business poorly during the fixed licence period. This constitutes a commercially sensible reason for D3 to retain the right to use the Trademarks, notwithstanding the concurrent grant of that same right to the Plaintiffs and despite D3’s minor investment into the Plaintiffs’ new eyewear company. For the same reason, injecting capital into and assuming a role of minority shareholder in the Plaintiffs’ new eyewear company does not, by itself, mean that D3 has granted an exclusive licence to the Plaintiffs[58].

93.  The Plaintiffs submit[59] that all of the evidence before the Court confirms that the licence to be granted was exclusive, relying principally on the oral evidence provided by DW1 and Mr Gasperis during cross-examination.

94.  In relation to DW1’s oral evidence, the Plaintiffs refer the Court to the following answers given by DW1:

“Plaintiffs’ Counsel: Apart from this eyewear business, you weren't going to grant an eyewear licence to another licensee, correct?

DW1: At that time we did not consider to grant other competitors the licence. …

Court: I want to make sure I understand your evidence. Was the content of the discussion on the taking over of the eyewear business of Shanghai Tang by Mr De Gasperis’ company to operate?

DW1: The main content of the discussion was about licence. At the time Shanghai Tang had manufactured 4,700 pairs of eyewear. But the sale was not good. There was a lot of stock. So we had discussed that if we grant the licence, there would be a continuous sale of Shanghai Tang eyewear … I mean Maurizio's company would buy the eyewear from Shanghai Tang.

Court: Thank you, Mr Mao. So your understanding of the discussion at that time was that if Mr De Gasperis was going to operate this business and acquire glasses from Shanghai Tang, Shanghai Tang would not operate an eyewear business on its own. Is that your understanding of the discussion?

DW1: My understanding is that through the co-operation of the licence of the eyewear, Shanghai Tang will continue to do the eyewear business if Maurizio's eyewear was not of good quality and the sale was not good. …

Plaintiffs’ Counsel: You knew, you absolutely knew, that if you put the word “non-exclusive”, it would be totally unacceptable to Maurizio?

DW1: Of course I didn't know, because the substance is the same - apart from the company, he [P1] was the only person who could use the licence.”

95.  I am afraid the Plaintiffs’ reliance on DW1’s answers above is misplaced. His responses clearly indicate that the Defendants envisaged Mr Gasperis establishing a new eyewear business independently and that, although his new company would purchase eyewear products from Shanghai Tang and produce its own range, if the new venture’s products and sales were poor, D3 would opt to do run the eyewear business on its own. This understanding sensibly explains why an exclusive licence was not contemplated and provides a coherent commercial rationale for the absence of an exclusive provision. Indeed, this contingency plan directly contradicts any claim that exclusivity was ever intended as a binding term.

96.  The Plaintiffs further rely[60] on Mr Gasperis’ answer during cross-examination, when it was suggested to him that in each of the draft licence agreements, there simply was no reference to an exclusive licence, to suggest that the licence granted in their favour must be exclusive and worldwide, applying the analogy of marriage between husband and wife. He told the Court:

“The exclusivity or the territoriality, we don't need to negotiate. We only need to negotiate as businessmen, what and how long? We have done business together. It's like we are married, and you don't have the right to be with another woman. It's decided on 2 December 2019, that I would be taking care of the new business.”

97.  This reliance is, in my view, inapt. Firstly, in my view, marriage is an inappropriate analogy; such an analogy erroneously implies a level of personal and mutual obligation that is absent in the commercial context. The previous employment relationship between D3 and Mr Gasperis is not analogous in any substantive way to the trademark licensor-licensee relationship. Secondly, the phrase “done business together” is too broad a term to describe adequately the relationship attendant upon the granting of a trademark licence. Thirdly, the relationship between an employer and its resigned employee, though not adversarial, is fundamentally dissimilar to that between married partners.

98.  The Plaintiffs further allege[61] that every draft licence agreement produced prior to 25 March 2020 was an exclusive licence, and at no stage during the drafting process did the Defendants explicitly request a “non-exclusive” licence. This assertion is not factually correct. As explained in paragraph 63(6)(a) and Footnote 38 above, there is no exclusivity intended in Ds’ 23 February 2020 Draft – only a sole licence was stipulated to be granted in it.

99.  In any event, since these draft licence agreements were prepared by both parties after the conclusion of the Separation Terms, they represent post-contractual conduct which is not admissible for the purpose of arguing[62] that the agreement contained in Part 3 conferred an exclusive licence – as this involves the interpretation of Part 3. As a matter of principle, similar to pre-contractual negotiations as explained in paragraph 90 above, post-contractual conducts are equally not admissible. The Plaintiffs rely heavily on Chitty on Contracts, 35^th ed at paragraph 16-061 and related authorities in Hong Kong[63] which permit subsequent conduct to be adduced to show whether there was a contract and what the terms of the contract were. However, the issue here is not the ascertainment of the existence of a contract or identification of its terms. The issue here is one of interpretation of contract, namely whether Part 3, correctly construed, includes the Outstanding Essential Terms, particularly the exclusivity of the intended licence. As submitted by the Defendants’ counsel[64], there is an important distinction between the identification and interpretation of terms, as explained in the English High Court’s judgment in Re Sea Containers Services Ltd [2012] EWHC 2547 (Ch) at paragraph 88 per Hildyard J:

“88. As briefly indicated above, it seems to me that the essential dividing line is between, on the one hand, the process of identifying all the terms of the arrangements said to constitute the contract and requiring interpretation, and on the other hand, the process of interpreting those terms: and see again per Lord Hoffmann in Carmichael at page 1234. The first is a question of fact; the second a question of discerning the objective intention of the parties from the words they used to express their agreement and their admissible context. Once the terms have been identified, their meaning is to be ascertained objectively and without regard to evidence of subjective intent or post-contractual conduct. So the question is: on which side of the divide does the exercise advocated on behalf of the Representative Respondents really fall?” (my emphasis in bold)

Therefore, it is not permissible for the Plaintiffs to use these draft licence agreements after the conclusion of the Separation Terms to show what Part 3 means – in other words, to determine the construction of Part 3.

100.  As to implied terms, in my judgment, there is no implication of the Outstanding Terms into Part 3 or elsewhere in the Separation Terms.

101.  First of all, the Plaintiffs did not plead any implied terms in its pleadings.

102.  There is only a brief reference in their written closing submissions[65] in which the Plaintiffs rely on the factual matrix and the subsequent conduct up to and including the production of Ds’ 25 March 2020 Draft to establish that “it goes without saying” in the Alleged 2 December 2019 Agreement and in Part 3 that the licence agreement to be granted was exclusive; however, but there is no detailed elaboration on the basis of “it goes without saying” or business efficacy which, according to the Plaintiffs, gives rise to the implication of exclusivity as a term in Part 3. In any event, since the Plaintiffs rely on the factual matrix and the post-contractual conduct that I have examined and rejected for the reasons explained above, the brief and unsubstantiated assertion of an implied term by the Plaintiffs is consequently rejected.

103.  In rejecting the implied term argument, I have not lost sight of the principle, as the Plaintiffs submitted[66], that the courts should endeavour not to destroy the bargain, including, where necessary, by implying all reasonable terms to avoid any uncertainty, as well as the English High Court’s judgment in Brooke Homes v Portfolio Property Partners [2021] EWHC 3015 (Ch), which they rely[67] on, at paragraph 100, where Deputy High Court Judge Hugh Sims QC expressed the following view:

“The object or result which these obligations were directed to achieving gives rise to a more difficult issue in this case, which is that the desired result is to capture the Heads of Agreement into a new agreement, including in particular a CSA. It might have been argued this constituted an unenforceable agreement to agree (see May and Butcher v The King [1934] 2 KB 17 and Walford v Miles [1992] 2 AC 128), though Mr Reynolds did not advance such a submission on behalf of the Defendants, and they accepted that the reasonable endeavours and good faith obligations contained in the Agreements were enforceable. No doubt they had in mind, when making that concession, to the principles set out in Rix LJ in Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2 Lloyd's Rep 76, in which it is emphasised that in commercial dealings where the parties have acted in the belief that they had a binding contract, the courts are willing to imply terms, where that is possible, to enable the contract to be carried out. The courts will assist the parties to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain. I believe that principle is reflected in the approach taken by Arden LJ in Herbert v Doyle referred to in [82] above. Cases such as Petromec Inc v Petroleo Brasileiro SA Petrobas (No 3) [2005] EWCA Civ 891, [2006] 1 Lloyds Rep 121 at [115]-[121] show that the courts will now be willing to recognise an obligation to negotiate on some matter using reasonable endeavours, or in good faith, where it is found in a binding agreement.”

104.  While the Court should do everything possible to assist the parties in preserving a bargain rather than destroying it, including, where necessary, implying reasonable terms to enable the contract to be carried out, such endeavours must be reasonable; and if terms are to be implied, such implication must be found on a sound basis and established ground. Terms cannot be implied “out of the blue” merely to dogmatically make the contract enforceable, as this may simply depart from the original bargain of the parties. In other words, the Court cannot go so far to rewrite the contract solely to make an otherwise unworkable contract workable.

105.  For the reasons explained above in relation to the Plaintiffs’ submissions, I cannot find anywhere in the factual context of this case any indication as to how the Outstanding Essential Terms can be implied in a reasonable manner.

106.  In the premises, the only conclusion that I can reach is that Part 3, including the 3 Agreed Terms, represents the farthest compromise that the parties could reach at the time when the Separation Terms were signed. The parties expressly left other matters to be agreed. Unfortunately, the Outstanding Essential Terms were so fundamental and commercially determinative that the parties could not reach further agreement during the negotiation of the licence agreement. Whilst as mentioned above I am certainly aware that the Court should be slow to find Part 3 to be unenforceable due to uncertainty, vagueness and constituting an agreement to agree, as held in the English Court of Appeal’s judgment in Pretoria Energy Co v Blankney Estates [2023] L. & T.R. 28 (affirming the first instance judgment of Deputy High Court Judge Joanne Wicks QC [2022] EWHC 1467 (Ch)) at paragraph 17, for the reasons explained above, the gap or the void represented by the Outstanding Essential Terms is too wide to be bridged. The Plaintiffs cannot now rely on Part 3 to unilaterally impose terms that have not been agreed by the Defendants, and which are so material and essential that, without them, the licence would be unworkable, uncertain and hence unenforceable.

107.  For completeness, I deal with the Plaintiffs’ complaint that the Defendants’ defence is not pleaded. The Plaintiffs object[68] that the Defendants’ main line of attack, regarding the construction of Part 3 – namely, “it is difficult to see how Ds could be under any obligation to grant an exclusive licence to P2”[69] – is not a matter that has been pleaded by the Defendants in their Defences. They rely on the fact that their plea of the duty to grant an exclusive licence[70] has not been specifically traversed by the Defendants in their Defences. This submission is misconceived. To discern a party’s case, the Court should look at the parties’ entire pleadings and not just one plea. Apart from the express denial, as set out in paragraph 71(1) above, the Defendants’ pleaded case is that Part 3 is an agreement to agree, which is unenforceable, and that the provision is not sufficiently complete and certain to be enforceable in law. Moreover, the Defendants have also pleaded[71] that neither the Separation Terms nor the Alleged 2 December 2019 Agreement contain key provisions that needed to be agreed upon subsequently in the licence agreement, including that no agreement was reached as to whether the terms of the licence should be on an exclusive or non-exclusive basis. As such, in my view, the issue has been clearly and adequately pleaded.

108.  For the above reasons, in my judgment, in so far as the granting of a licence of the Trademarks by D3 to the Plaintiffs is concerned, Part 3 of the Separation Terms is uncertain and unworkable and constitutes an agreement to agree. Consequently, it is not enforceable.

109.  Having determined that Part 3, for the purposes of the granting of a licence for the Trademarks, is unenforceable, it is unnecessary for me to consider whether the Defendants were correct in introducing additional terms in the licence agreement which, in the Plaintiffs’ submission, contradict the terms that were agreed and incorporated in Part 3, such as imposing conditions for renewal of the Licence after the first 5 years, payment of a fixed royalty for the fourth contract year, with a minimum 10% increase on such royalty for each subsequent contract year, and giving D3 the right to terminate the Licence within the first 5-year term, as referred to in paragraph 63 above. Even if the Defendants were mistaken in introducing these terms, the finding of such errors could not cure the unenforceability of Part 3.

E5(2)  Reasonable Efforts to Negotiate

110.  As mentioned in paragraph [69] above, the Plaintiffs claim that the Defendants had an independent or additional obligation under Part 5 of the Separation Terms “to use all reasonable efforts to satisfy their obligations under these Separation Terms” and they have failed to do so. In particular, the Plaintiffs contend[72] that the Defendants have failed to negotiate the proposed license agreement in good faith and with all reasonable efforts.

111.  This argument does not assist the Plaintiffs, because:

(1)  The requirement under Part 5 of the Separation Terms is for the parties to use all reasonable efforts to satisfy their obligations under the Separation Terms. To address the Plaintiffs’ complaint that the Defendants have fallen short of this requirement, the Court must determine which specific obligation(s) the Defendants allegedly failed to discharge, which inevitably involves analysing the underlying obligation set out in the first paragraph of Part 3. In the present proceedings, the Plaintiffs obviously are complaining that D3 has failed to grant the licence to the Plaintiffs for their new eyewear business.

(2)  For the reasons stated above, this Court has concluded in paragraph [108] above that, with respect to the granting of a licence for the Trademarks by D3 to the Plaintiffs, Part 3 is unenforceable. Consequently, the Defendants cannot be faulted for failing to use all reasonable efforts to perform an unenforceable obligation. I agree with the Defendants’ submission that using reasonable efforts does not cure the problem of unenforceability, nor does it impose an enforceable requirement on D1 and D3 to grant the Plaintiffs a licence.

(3)  Given the above finding that there is no legally binding or enforceable obligation for D3 to grant a licence in relation to the Trademarks to the Plaintiffs in Part 3, the requirement in Part 5 that the parties use all reasonable efforts to negotiate a licence is likewise unenforceable. This is because the parties, even when negotiating in good faith and employing all reasonable efforts to reach a consensus, remain free to negotiate in a manner that serves their own commercial interests; they cannot be compelled to compromise on commercial interests that are diametrically opposed or irreconcilable, where no convergent compromise can be found, as observed by Rogers V-P in Hyundai Engineering & Construction Co Ltd v Vigour Ltd [2005] 3 HKLRD 723 at paragraph 27:

“… a court is not in a position to determine the good faith or otherwise of negotiations because a party is entitled to negotiate in any way it feels fit. In the first place it is inevitably acting in its own best interests and in the second place the tactics of negotiation may vary from person to person. In some cases part of a negotiating tactic maybe to call off the negotiations hoping that better terms would be offered.”

Therefore, the Court of Appeal held that an agreement to use best endeavours to negotiate or to negotiate in good faith was not enforceable. The Plaintiff argues[73] that this case can be distinguished from the present case because there was no binding agreement in that case. Obviously, this argument is circular: if the underlying obligation, e.g. to grant a licence, were already enforceable and binding, D3 would be obliged to grant a licence, and there would be no need to rely on the requirement to use the best endeavours to grant a licence.

E5(3)  Injection of capital into the Plaintiffs’ new eyewear business

112.  As mentioned in paragraph 7(2)(b) above, the final issue in Issue 2 is whether the Defendants breached Part 3 by failing or refusing to inject US$500,000 into the new eyewear business in the form of equity capital in exchange for a 10% shareholding in that business.

113.  As a matter of fact, as mentioned in paragraph 64 above, no new eyewear business, i.e. the New Business referred to in Part 3, was established, and no new company was set up for that purpose. As such, no capital could be injected into the New Business or any new company incorporated for it.

114.  The Plaintiffs submit[74] that the injection of capital required in Part 3 is a mandatory and standalone obligation and was never contingent on the licence being granted. I disagree. In my view, because the Outstanding Essential Terms were never agreed, either expressly or impliedly, Part 3 remains an agreement to agree – uncertain and unenforceable. Accordingly, the Plaintiff cannot compel the Defendants to inject capital where there is no operative New Business.

115.  The second paragraph of Part 3 stipulates that, on or before 1 April 2020, D1 or D2 shall inject USD500,000 into the “New Business” in the form of equity capital in exchange for a 10% interest in “the eyewear company incorporated by [Mr Gasperis] of his nominee company”. As evidenced by the heading and the first paragraph and the second paragraph of Part 3 – which appears to be common ground – the New Business pertains to the operation of an eyewear business utilizing the Trademarks of Shanghai Tang. If no licence for use of the Trademarks can be granted, then no New Business can be operated, and the need to incorporate a new company for that purpose is negated. This analysis is consistent with the facts and, in my view, accurately reflects what actually transpired.

116.  In practical terms, without the right to use the Trademarks for its eyewear products, the New Business cannot manufacture, market or sell any such products using Shanghai Tang’s Trademarks. I therefore agree with the Defendants’ submissions[75] that Part 3 is conditional upon the granting of the licence and that, if no licence is granted, there will be no New Business – in any commercially viable sense – for D1and D2 to inject capital.

E5(4)  Conclusion on Issue 2

117.  In my judgment, for the reasons explained above, the Defendants did not breach Part 3 of the Separation Terms by failing or refusing, by 1 April 2020, to enter into an agreement to grant a licence in respect of the new eyewear business and to inject US$500,000 in equity capital in exchange for a 10% shareholding in that business. The Plaintiffs’ claim under Issue 2 fails.

E5(5)  Miscellaneous Matters

118.  For completeness, there are two matters that I shall address briefly.

119.  The first matter concerns the Defendants’ alternative position on licencing. As mentioned in paragraph 72 above, the Defendants have advanced an alternative position that, if Part 3 imposes an enforceable obligation on them to grant the Plaintiffs a licence, then D3 should be required only to grant, or to use all reasonable endeavours to grant, a non-exclusive licence to P2.

120.  In the above, I have determined that Part 3, for the purposes of granting a licence for the Plaintiffs’ new eyewear business, is unenforceable, because, in a nutshell, there were Outstanding Essential Terms that had not been agreed, either expressly or impliedly, in Part 3; they were left for further agreement of the parties; and as these terms were so material and fundamental that, without them, the licence could not possibly be granted, the requirement to grant a licence set out in Part 3 constitutes an agreement to agree – uncertain and unenforceable. Accordingly, the Plaintiffs cannot compel the Defendants to grant them an exclusive licence.

121.  This is exactly the same reason why the Defendants’ alternative position, limiting their obligation under Part 3 to granting a non-exclusive licence, is also flawed. As explained above, the nature of the right to use the Trademarks – whether exclusive or non-exclusive – is one of the Outstanding Essential Terms. The reasons given above to explain why a requirement for granting an exclusive licence has not been expressly or impliedly agreed by the parties and incorporated into Part 3 apply equally in explaining why a requirement for granting a non-exclusive licence has not been expressly or impliedly agreed by the parties and incorporated into Part 3. The materiality of the Outstanding Essential Terms is central and renders both the Plaintiffs’ main argument and the Defendants’ alternative argument invalid.

122.  The second matter concerns assessment of damages. As the Plaintiffs’ claims against the Defendants for breach of Part 3 have failed, it is unnecessary for me to address this issue in detail. However, for the sake of completeness, I shall briefly discuss it.

123.  As noted in paragraph 17 above, the Plaintiffs’ abandonment of seeking specific performance also applies to their claim for the Defendants’ breach of Part 3, i.e. they no longer require the Defendants to inject USD500,000 into New Business. Concerning their claim for breach of Part 3, they primarily[76] assert that if the contract had been performed, P2 would have received USD2,612,520. The Plaintiffs submit that this figure is calculated on the basis of Mr Gasperis’ estimated net profit of USD4,108,000 over 10 years in a “business plan” (which the Plaintiffs provided to the Defendants in January 2020), minus royalty payments of USD1,495,480 over 7 years – assuming royalties are payable from the fourth year and at a rate of 8% of net sales in accordance with Part 3. Similarly, the Plaintiffs’ alternative claim for damages in lieu of specific performance[77], based on the loss of profit they would have earned had the Defendants injected USD500,000 into the New Business in compliance with Part 3, is derived from the same calculations and results in the same figure.

124.  In my view, the burden of proof, that USD2,612,520 represents either, as contractual damages, the loss suffered by the Plaintiffs due to the Defendants’ breach of Part 3 or, as damages in lieu of specific performance, the profit the Plaintiffs would have earned had Part 3 been specifically performed, rests squarely on the Plaintiffs. This is trite, as Lord Sumption JSC remarked in the UK Supreme Court’s judgment in Hughes-Holland v BPE Solicitors [2018] AC 599, paragraph 53 at page 629:

“The legal burden of proving any averment of fact lies upon the person who is required to assert it as part of his case. In the ordinary course, this means that the claimant has the burden of pleading and proving his loss, whereas the defendant has the burden of proving facts (such as failure to mitigate) going to avoid or abate the consequent liability in damages.”

The Plaintiffs must satisfy the Court that the basis of their loss calculations is reasonable and that the underlying figures and estimates are soundly derived, reliably established, and not speculative. They cannot “base its case on guesswork or self-serving assumptions”, per Mr Recorder Shieh SC in Degreeasia Limited t/a Hong Kong Institute of Continuing Education v Paules Lee Siu Yuk, unreported, HCA 1686/2006, 25 June 2010 at paragraph 189.

125.  It is clear that the Plaintiffs fall significantly short of the evidential threshold. I accept those of the Defendants’ criticisms[78], which I summarize as follows:

(1)  Concerning the figures referred to paragraph 123 above: The alleged loss of net profit of USD4,108,000 for 10 years was derived merely by doubling the estimated profits for the initial 5-year period, with no explanation or analysis as to why the net profit for the latter 5 years should be exactly match that of the initial 5 years.

(2)  On the alleged royalty payments: The Plaintiffs reach a figure of USD1,495,480 for 10 years, as noted in paragraph 123 above, by simply multiplying P1's estimated royalties payable for the 4^th and 5^th years[79] by 3.5. This calculation is inconsistent with the Plaintiffs’ own figure in their business plan, which indicates royalty payments totalling USD1,720,000 for 10 years.

(3)  Assumption of an exclusive and worldwide licence: Mr Gasperis’ accepted in his oral evidence that the calculations are based on the assumption that the Plaintiffs would be granted such a licence – a premise that has been determined above to be incorrect.

(4)  Turnover growth estimates: The Plaintiffs’ business plan estimated an annual turnover increase of approximately USD250,000 for years 1 and 2 and USD500,000 thereafter. However, no explanation, factual basis, or analysis was provided to substantiate these figures. The Court cannot determine whether these projections are commercially realistic, particularly given the extraordinarily high projected growth rates (223%, 284%, 217%, 166% and 142% for the first five years).

(5)  Price and cost structures: The Plaintiffs failed to provide any explanation or analysis to justify keeping the average selling price constant at USD203 and the unit production cost fixed at USD16.6 for the first 5 years.

(6)  Workforce requirements: Despite anticipating rapid growth, the business plan suggested that only 3 staff members would be employed for the first 5 years, without any explanation or analysis to support sufficiency of this workforce.

(7)  Organic traffic revenue calculation: In estimating the revenue from website visitors redirected from P2’s eyewear website (“P2’s new website”), P1 used a figure of 183 as the “Average daily visitors’ number of SHT.COM” (i.e. D3’s business website) in year 1 to be re-directed to P2’s new website. During cross-examination, he explained that this number was obtained by multiplying the “2019 average daily visitors at SHT.COM” (1318) and “% SHT retail customers who bought the Shanghai Tang eyewear collection re-launched in 2019” (13.7%). This calculation effectively assumes that all of D3’s retail customers who purchased D3’s eyewear on SHT.COM would be redirected to P2’s new website, yet no substantiation for this assumption was provided.

(8)  Exaggerated percentage figure: The 13.7% figure is based on the extrapolation of the number of eyewear customers from a 4-month period in 2019 and fails to account for, inter alia, purchases of eyewear customers through physical retail outlets, suggesting that this percentage is exaggerated.

(9)  Paid traffic figures: Regarding “paid traffic” (i.e. “website visitors generated through advertising on social media and search engines” as defined in the Plaintiffs’ business plan), P1 adopted USD7 as the “Conservative (highest) average Cost-per-1,000 (viewers)” and 1.2% as the “Conservative (lowest) Click-through Rate Hits converted into Visitors”. However, when cross-examined, P1 merely attributed these figures to his “knowledge” and claimed that “everyone knows”. When he was asked of the source of the data, he simply stated “all the sources I got” and referred to, inter alia, “Meta” and “actual data”, with the admission that the data was not specific to D3 but was “for everyone”. Obviously, these responses are unhelpful and fail to persuade this Court that the figures are reliable.

(10)  Conversion rate for visitors: The Plaintiffs adopted 1% as the “Conservative (lowest) Conversion rate % Visitors converted in Buyers” for both organic traffic and paid traffic, without providing any explanation or empirical substantiation. P1 again claimed that this was based on “actual data” and his “knowledge” but produced no such data. His later admission that this rate is not restricted to eyewear products further undermine its credibility.

(11)  Assumed growth rate for traffic: The Plaintiffs estimated compound annual growth rates of 24% and 36% in respect of organic traffic and paid traffic respectively. The Plaintiffs did not explain how such growth rates could be achieved or producing any evidence from comparable businesses.

(12)  E-commerce platform sales: In estimating revenue from e- commerce platforms, as stated in the business plan, P1 estimated that each platform would sell 600 units of their eyewear products in its first year, with sales subject to a compound annual growth rate of 5%. Again, no empirical evidence was produced. P1 merely claimed the figure was based on his “experience”.

(13)  E-commerce operational assumptions: P1 estimated figures for the “Minimum product mix required to be listed in the E-comm Platforms” (6), the “Minimum quantities required for each style/color (SKU) in order to guarantee adequate service level to customers” (100), and the “Average commission to be recognized to the E-comm Platforms to cover sales and operations” (27%) for e-commerce platforms, without adducing substantiating proof. Given that the Plaintiffs have no track record, these bare assertions are not credible.

(14)  Optical Chain revenue projections: In calculating revenue from “Optical Chains”, P1 estimated that 20 stores, each selling 40 units (i.e. 800 units per store in the first year), coupled with a 66.7% discount on retail price (equivalent to a 3-time multiple), would yield the projected results. Again, these figures are all bald assertions, in P1’s oral evidence, solely based on his “experience”, and lack any supporting data.

(15)  Growth rate for Optical Chain sales: P1 further estimated a compound growth rate of 5% for eyewear unit sales via optical chains, again offering merely an unsubstantiating estimation.

(16)  Overall reliability of projections and estimations: In sum, the projections, estimations and calculations provided by P1 from a “business plan” rather than a meticulously prepared report calculating damages. Not being prepared by an independent professional expert and being based solely on P1’s subjective estimates and market perceptions, they lack any rigorous factual basis or analysis. In my view, these projections, estimations and calculations are unreliable.

126.  For the above reasons, I find that even if damages were payable by the Defendants to the Plaintiffs for breach of Part 3, the Plaintiffs have failed to discharge their burden of proving a substantive loss. As a result, such damages can only be nominal.

F.  Issue 3

127.  As set out in paragraph 68 above, under Issue 3, the Plaintiffs alternatively claim that D1 and D3 have breached the Alleged 2 December 2019 Agreement by failing to grant Mr Gasperis or D2 an exclusive licence for the new eyewear business and by injecting the capital of US$500,000 into the New Business or P2 or new company that the Plaintiffs incorporated for the New Business.

128.  This alternative claim is a non-starter and must fail in my judgment.

129.  As noted in paragraph 68 above, in the Plaintiffs’ own case, the terms set out in Part 3 mirror and reflect the binding essential terms that had already been agreed P1 and DW1 in the Alleged 2 December 2019 Agreement. These terms were evidenced in P1’s two emails to DW1, both issued on 2 December 2025. In other words, in the Plaintiffs’ own case, the Alleged 2 December 2019 Agreement, even assuming it to be extent and binding, contains no material terms beyond those in Part 3[80]. There are no material terms in the Alleged 2 December 2019 Agreement in addition to Part 3, e.g. it does not prescribe that the licence to be granted is exclusive and worldwide[81]. Therefore, the determination and reasoning that applies to Part 3 apply equally to the Alleged 2 December 2019.

130.  Secondly, in my judgment, there was no binding agreement reached on 2 December 2019. I agree with the Defendants’ submissions that the email exchange on that date - as referred to in paragraph 68 – merely contemplated a final written agreement, namely the Separation Terms. This is evidenced by Mr Gasperis’ first email, in which he stated that he was recapping DW1’s proposal (the “conditions proposed”) and requested DW1 to confirm so that the parties might “finalise the discussion”. Thus, the negotiation was intended to conclude only after the written the Separation Terms were prepared and signed.

131.  Thirdly, Appendices A and B to the Separation Terms, i.e. the CEO Resignation Letter and the Director Resignation Letter, both subsequently signed by P1, confirmed that the Separation Terms are the sole binding agreement between the parties. The CEO Resignation Letter stipulates that there is no agreement or arrangement outstanding under which D3 or any of its subsidiaries has or could have an obligation to P1 whether now or in the future whether for the payment of money or otherwise, whereas in the Director Resignation Letter, P1 states that he confirms that he has no claims against D3 in respect of fees nor in respect of compensation for loss of office, other than those arising under or in connection with the Separation Terms. I do not consider the Plaintiffs are now entitled to backtrack from these words and assert claims based on an alleged agreement (i.e. the Alleged 2 December 2019 Agreement) that is inconsistent with the CEO Resignation Letter and the Director Resignation Letter.

132.  Therefore, the Plaintiffs’ alternative claim under Issue 3 must fail.

G.  Issue 4

133.  Issue 4 arises from the email sent by Mr Gasperis to DW2 on 3 December 2019. The Plaintiffs contend, in alternative to their claim under Issue 1, that this email, coupled with DW1’s positive confirmation reply email, constituted a binding agreement – the Alleged 3 December 2019 Agreement; and that D3 has breached this agreement by failing or refusing to pay the Plaintiffs the sum of US$150,000.

134.  The Plaintiffs’ case on Issue 4 is pleaded as follows[82]:

“(VIII) On 3 December 2019 at 1:04pm, the 1^st Plaintiff sent an email to Jerry Mao (“Email 4”) which states that:-

‘Hi Jerry,

As per our today's discussion, the below previous terms are understood as confirmed with the following additional points.

With regards to point 1 I will be recognised with an additional amount of US$150K payable within 1 March 2021 under the condition the company losses will reduced below US$5m (measured in the last 12 months from 1 March 2020 to 28 February 2021).

[not agreed by you but as discussed I would really appreciate if this amount in 2021 can be at least USS250K as a gesture to recognize the value creation and full coverage of the direct and indirect transactional cost].

With regards to point 4. in the communication will specify that in line with our agreement my role will change to ‘Strategic Advisor’ and in the future I will be focusing on Eyewear and other business development initiatives. In addition, for the initial period I will support you in the transition for the coordination of the group operations.

After all settlement and obligations from this agreement will be duly and timely hounoured by both parties within 1 March 2020 you are open to discuss a plan I will present for the development of Shanghai Tang International business outside the core markets in Asia (eg. Europe. Middle-East, America).

Please confirm the above is correct and my comment in square brackets so I can recap everything in a simple 1-page document for the sake of good order and signature.

Regards,

Maurizio’

(IV) On 3 December 2019 at 07:02:15 (Central European Standard Time), Jerry Mao sent an email to the 1^st Plaintiff (“Email 5”) replied to Email 4 with the word “confirm”.

(V) The 1^st and 2^nd Plaintiffs aver that the terms agreed between the 1^st Plaintiff and Jerry Mao as aforesaid in Email 4 and Email 5 constitute a binding agreement (the “3 December 2019 Agreement”) between the 1^st Plaintiff and the Defendants. The 1^st and 2^nd Plaintiffs further aver that the key term of the 3 December 2019 Agreement is that the Plaintiffs will be paid a sum of USD150,000 on 1 March 2021 if the 3^rd Defendant's losses are below USD5 million for the period from 1 March 2020 to 28 February 2021.”

135.  Similar to Issue 3, the Plaintiffs contend that the terms of the Alleged 3 December 2019 Agreement mirror the terms of Part 2[83].

136.  In my judgment, the Plaintiffs’ alternative claim under Issue 4 must fail for the following reasons:

(1)  The Alleged 3 December 2019 Agreement was not binding. In Email 4, P1 indicated to DW1 that upon receiving confirmation from DW1 he would recapitulate the agreed terms in a one-page document for signature. Although the Separation Terms ultimately proved to be significantly longer, this clearly demonstrates that the negotiation, at least in relation to the payment of the Extra Bonus, had not been finalized. In fact, P1 was still urging D3 to agree to increase the Extra Bonus from USD150,000 to USD250,000.

(2)  As explained in paragraph 131 above, by signing the Separation Terms and its Appendices A and B (the CEO Resignation Letter and the Director Resignation Letter), P1 confirmed that these are the only binding agreement between the parties. As such, the Plaintiffs cannot now disregard these documents and rely on an alleged alternative agreement (i.e. the Alleged 3 December 2019 Agreement) to assert yet the same claims as in Issue 1.

(3)  In any event, as set out in Email 4, the payment of USD150,000 was “under the condition” of, i.e. conditional upon, D3’s loss being below USD5 million. As detailed in Section D above, there is no evidence to support that D3’s losses fell below this threshold. This condition was not met. The Plaintiffs’ claim cannot succeed.

H.  Conclusion and Disposal

137.  In conclusion, I make the following orders:

(1)  As stated in paragraph 50 above, the Defendants’ Summons dated 2 October 2024 is dismissed.

(2)  As stated in paragraph 60 above, the Plaintiffs’ claim against the Defendants for the 3^rd Defendant’s breach of Part 2 of the Separation Terms succeeds, but only to the extent that the 3^rd Defendant failed to provide the management accounts, for which nominal damages are awarded. Their claim for damages, or damages in lieu of specific performance, in the amount of USD150,000 is dismissed.

(3)  As stated in paragraph 117 above, the Plaintiffs’ claim against the Defendants for breach of Part 3 of the Separation Terms is dismissed.

(4)  As stated in paragraph 132 above, the Plaintiffs’ alternative claim based on an alleged agreement on 2 December 2019 is dismissed.

(5)  As stated in paragraph 136 above, the Plaintiffs’ alternative claim based on an alleged agreement on 3 December 2019 is dismissed.

138.  With respect to costs:

(1)  I order that the costs of the Defendants’ Summons dated 2 October 2024 be paid forthwith by the Defendants to the Plaintiffs, assessed summarily at HK$72,780.

(2)  In so far as the Defendants’ breach gave rise to the Plaintiffs’ claim under Part 2 of the Separation Terms, and taking into account the unsuccessful claim for damages by the Plaintiffs, I make an order nisi that there be no order as to costs of the action in relation to the Plaintiffs’ claim under Part 2 of the Separation Terms.

(3)  Regarding the remaining costs of the action, I see no reason why costs should not follow the event. I therefore make an order nisi that, other than those costs stated in paragraph 138(2) above, the Plaintiffs shall pay the Defendants costs of the action, to be taxed if not agreed.

(4)  Either party may apply for variation of these cost orders nisi within 14 days from the date of this judgment; otherwise, the orders will become absolute automatically without further order.

139.  Lastly, I wish to express my appreciation for the helpful assistance of counsel.