XINHUA NEWS MEDIA LTD AND ANOTHER v. CHAN CHUN WO AND OTHERS

HCA 391/2022

[2025] HKCFI 770

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 391 OF 2022

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BETWEEN

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JUDGMENT

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A. Overview

1.  The Defendants were the directors and staff of the Plaintiffs.

2.  In the original action herein, the Plaintiffs sue the Defendants for recovery of the payments made on 30^th January 2019 (the “Payments in Question”) on the bases of breach of fiduciary duties/duty of care and/or unjust enrichment.

3.  Whilst the Plaintiff has discontinued its claims against the 1^st Defendant, it has entered final judgment against the 3^rd Defendant. In the circumstances, the present trial only concerns the 2^nd and 4^th Defendants.

4.  According to the Plaintiffs, the Payments in Question were unauthorized discretionary bonus.

5.  According to the 2^nd and 4^th Defendants, the Payments in Question were reimbursement received pursuant to the promise made by Mr. Yu Gugang (“Mr. Yu”), who was (i) a former executive director and former chief executive officer of the 2^nd Plaintiff; and (ii) a former director and the former chief executive officer of the 1^st Plaintiff[1].

6.  The 2^nd and 4^th Defendants further allege that they suffered loss as a result of acting on the Plaintiffs’ promise. They respectively counterclaim against the Plaintiffs for damages and/or restitution in the ranges between (i) HK$8,502,493.20 and HK$2,573,446.80[2]; and (ii) HK$2,382,686 and HK$564,600[3].

7.  Meanwhile, the 4^th Defendant also counterclaims for reimbursement in respect of the “additional” tax expenses in the amount of HK$122,286 that were said to be incurred as a result of relying on Mr. Yu’s promise as well as the restitution for the subscription sum of HK$564,000 paid to the Plaintiffs.

B. Material Background

B1. The Parties

8.  The 2^nd Plaintiff is a company whose shares are listed on the Main Board of the Hong Kong Stock Exchange (stock code: 309)

9.  The 1^st Plaintiff is a wholly owned subsidiary of the 2^nd Plaintiff.

10.  From 26 February 2018 to 27 April 2020, the 1^st Defendant was (i) the 2^nd Plaintiff’s chief executive officer, executive director and co-chairman of board of directors; as well as (ii) the 1^st Plaintiff’s chief executive officer.

11.  From 20 August 2013 to 14 October 2019, the 2^nd Defendant was (i) an executive director of the 2^nd Plaintiff; and (ii) the chief operating officer of the 1^st Plaintiff.

12.  From 11 December 2013 to 30 November 2018, the 3^rd Defendant (who was a solicitor) was the 2^nd Plaintiff’s company secretary.

13.  From 15 October 2013 to 31 May 2018, the 4^th Defendant was the 1^st Plaintiff’s vice president. She is also the 1^st Defendant’s daughter.

B2. Shares Option Scheme

14.  It is common ground that on 25 September 2015, the 2^nd Plaintiff adopted a share option scheme (the “Share Option Scheme”). The 2^nd and 4^th Defendants were respectively granted share options exercisable at the subscription price of HK$0.1882 per share.

15.  Pursuant to this Share Option Scheme, on 14 June 2017, the 2^nd and 4^th Defendants respectively subscribed 13,674,000 shares and 3,000,000 shares in the 2^nd Plaintiff at the price of HK$0.1882 per share. They respectively paid the 2^nd Plaintiff subscription sums of HK$2,573,446.80 and HK$564,000.

B3. The Hostile Takeover

16.  According to the 2^nd and 4^th Defendants, they subscribed the aforesaid shares in the 2^nd Plaintiff pursuant to Mr. Yu’s promise. The promise was made under the following circumstances.

17.  Wisdom Eighteen Ltd (“Wisdom Eighteen”) was a wholly owned subsidiary of a listed company named Wah Yan Health Ltd (stock code: 648) (“Wah Yan”).

18.  On 8 December 2016, Wah Yan published an announcement indicating that Wisdom Eighteen put forward voluntary conditional securities exchange offers for acquiring all the issued shares of the 2^nd Plaintiff and cancelling all the unexercised share option.

19.  On 16 March 2017, Wah Yan published a further announcement indicating that the terms of Wisdom Eighteen’s offer were revised as follows: (i) 9 new shares in Wah Yan were offered in exchange for 1 share in the 2^nd Plaintiff; and (ii) 4 new shares in Wah Yan were offered in exchange for the cancellation of every unexercised share option in the 2^nd Plaintiff (the “Takeover Offer”).

20.  In the circumstances, VBG Capital Ltd (“VBG”) was engaged as the 2^nd Plaintiff’s independent financial advisor. As evidenced by the announcement made on 5 June 2017, VBG opined that the terms of the Takeover Offer were neither fair nor reasonable. Accordingly, the 2^nd Plaintiff advised its independent shareholders and share option holders to reject the Takeover Offer.

B4. The Alleged Reasons why the 2^nd and 4^th Defendants exercised Share Options

21.  It is the 2^nd and 4^th Defendants’ case that:-

(1) In order to protect the 2^nd Plaintiff and its shareholders, the 2^nd Plaintiff’s board of directors explored all potential options to defeat the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen.

(2) Against this background, in around June 2017, Mr. Yu, acting in the capacity as the director and chief executive officer of the Plaintiffs, requested the 2^nd and 4^th Defendants to exercise their options under the Share Option Scheme, such that they could, when necessary, utilize the rights under the subscribed shares to resist or stave off the Takeover Offer.

(3) In order to convince the 2^nd and 4^th Defendants to assist the Plaintiffs in achieving the said objective, Mr. Yu promised the 2^nd and 4^th Defendants that the Plaintiffs would compensate or reimburse them in regard to the costs and disbursement, including the tax liability incurred as a result of excising the options under the Share Option Scheme (the “Promise”).

(4) The 2^nd and 4^th Defendants agreed to Mr. Yu’s request. Thus, acting in reliance on the said Promise, on 14 June 2017, the 2^nd and 4^th Defendants respectively subscribed 13,674,000 shares and 3,000,000 shares in the 2^nd Plaintiff. Whilst they respectively paid subscription sums of HK$2,573,446.80 and HK$564,000, they respectively incurred deemed tax liability in the respective amounts of HK$887,525 and HK$288,286. In this regard, the 4^th Defendant said that she further incurred “additional” tax liabilities in the amount of HK$122,286.

(5) Further, acting in reliance on the said Promise, the 2^nd and 4^th Defendants did not sell the shares that were subscribed pursuant to the Share Option Scheme. They said that they missed the opportunity to earn substantial profits by selling the shares in a timely manner.

B5. The Outcome of the Hostile Takeover

22.  It transpired that at Wah Yan’s extraordinary general meeting on 30 June 2017, the shareholders of Wah Yan voted against the Takeover Offer. It lapsed accordingly.

23.  According to the 2^nd and 4^th Defendants, although Wah Yan and/or Wisdom Eighteen failed to take over the 2^nd Plaintiff at the shareholders’ level, their management sought to control the 2^nd Plaintiff at the board level.

24.  From September to late October 2017, Wah Yan, through its nominee or associated entity[4], attempted to elect 5 directors to the 2^nd Plaintiff’s board of directors. However, none of these candidates was elected.

25.  The gross outcome was that Wah Yan failed to take over and/or control the 2^nd Plaintiff, whether at the shareholders’ level or the board level.

26.  It is the 2^nd and 4^th Defendants’ evidence that they contributed to the Plaintiffs’ victory in resisting the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen. In particular, at the 2^nd Plaintiff’s annual general meetings on 29 September 2017 and 20 October 2017, they utilized the voting rights under their shares to oppose the nominations made by Wah Yan’s nominee or associated entity.

B6. Subsequent Events

27.  On 22 January 2018, Mr. Yu resigned from the Plaintiffs. He ceased to be a director and the chief executive officer of the 1^st and 2^nd Plaintiffs.

28.  Shortly thereafter, in February and March 2018, the 1^st Defendant was appointed as (i) the 2^nd Plaintiff’s chief executive officer, co-chairman of the board and executive director; and (ii) the 1^st Plaintiff’s chief executive officer and director[5].

29.  On 31 May 2018, the 4^th Defendant resigned as the 1^st Plaintiff’s vice president.

30.  On 2 January 2019, the 2^nd, 3^rd and 4^th Defendants jointly issued an internal memo to the 1^st Defendant (the “Internal Memo”). This document has important bearings on the present dispute. Its contents are as follows:-

“To [the 1^st Defendant] (CEO)

As we conclude year 2018 and move onto year 2019, I am writing to ask that you grant a one-time compensation discretionary bonus to certain number of employees within the firm for their extraordinary contributions made to the company in the past five years, especially for the efforts in the past two years.

There was a verbal commitment from past Senior Management that the Firm would assist in the taxes payable incurred.

These employees exemplified great commitment in successfully defending a hostile takeover by another Hong Kong listed firm. These employees’ contributions have been invaluable to help preserve the value of the firm and to its shareholders.

As new senior management has been put in place, I write to ask that you would review and consider honoring still the past commitment to the listed employees below.

The employees and their suggested compensation sums are listed below:

[The 4^th Defendant] (Senior Vice President)- HK$200,000

[The 3^rd Defendant] (Company Secretary and Legal Counsel)- HK$660,000

[The 2^nd Defendant] (COO)- HK$880,000

Please review the recommended sums.

Sincerely yours,

[Signatures]”

31.  On 30 January 2019, the 1^st Defendant wrote the following words on the Internal Memo and signed his name thereon:-

“As to this report, it has been verified and confirmed as true. The matter was agreed. For matters to which the original board of directors agreed, I would implement the same, but this will not be repeated the next time.

[The 1^st Defendant]

Specifically approved

30 January 2019”[6]

32.  In the premises, on 31 January 2019, the 1^st Defendant, as an authorized signatory, caused the 1^st Plaintiff to make the Payments in Question in favour of the 2^nd, 3^rd and 4^th Defendants by cheques. The details were as follows:-

Parties	Amounts
2nd Defendant	HK$880,000
3rd Defendant	HK$660,000
4th Defendant	HK$200,000
	Total: HK$1,740,000

C. Summary of the Respective Cases of the Parties

C1. Summary of the Plaintiffs’ Case

33.  It is the Plaintiff’s case that the 2^nd Plaintiff’s remuneration committee (the “Remuneration Committee”) was responsible for:-

(1) making recommendations on policy and structure for the remuneration of the directors and senior management and establishing a formal and transparent procedure;

(2) reviewing and approving senior management’s remuneration proposals; and

(3) determining and making recommendations to the board of directors on remuneration packages of individual directors and senior management, including benefits in kinds, pension rights and compensation payments.

34.  Mr. Wilfred Tsui (for the Plaintiffs) submitted that the Internal Memo showed the Payments in Question were “discretionary bonus”. He further suggested that (i) the 2^nd Plaintiff’s Remuneration Committee never approved the Payments in Question (which were “discretionary bonus”); and (ii) neither Mr. Yu nor the 1^st Defendant had the authority to make and/or honour the alleged Promise. Thus, the Payments in Question were unauthorized.

35.  Mr. Tsui then went on to contend that:-

(1) In seeking to receive the Payments in Question (which were unauthorized), the 2^nd and 4^th Defendants breached their fiduciary duties and/or duty of care owed to the Plaintiffs as directors and/or senior corporate officers.

(2) Alternatively, the 2^nd and 4^th Defendants were unjustly enriched by the wrongful receipt of the Payments in Question.

C2. Summary of the 2^nd and 4^th Defendants’ Case

Original Action

36.  Mr. Toby Brown (for the 2^nd Defendant) and Ms. Lillian Ip (for the 4^th Defendant) submitted that the Payments in Question were neither “bonus” nor “remuneration”, but “reimbursement” for the tax liabilities incurred at the request of the Plaintiffs. Thus, the policy concerning the Remuneration Committee did not apply at all.

37.  Mr. Brown and Ms. Ip further contended that:-

(1) The 2^nd and 4^th Defendants could not breach any duties by merely requesting the 1^st Defendant to make the Payments in Question to them.

(2) Mr. Yu had actual and/or ostensible authority to make the Promise to them.

(3) The Plaintiffs are estopped from recovering the Payments in Question from them.

38.  Ms. Ip (for the 4^th Defendant) also contended that the 4^th Defendant was not a senior employee of the 2^nd Plaintiff at all. Thus, whilst she did not owe any fiduciary duties, the policy regarding the Remuneration Committee did not apply to her.

Counterclaim

39.  The 2^nd and 4^th Defendants said that they missed the opportunity to sell the shares that were subscribed pursuant to the Share Option Scheme. In the 4-month period after the share options were exercised[7], the price of the 2^nd Plaintiff’s share fluctuated from HK$0.350 to HK$0.810. As such, the 2^nd and 4^th Defendants could have earned profits between (i) HK$8,502,493.20 and HK$2,212,453.20 (which is the 2^nd Defendant’s case); and (ii) HK$2,382,686 and HK$564,600 (which is the 4^th Defendant’s case).

40.  In the premises, Mr. Brown and Ms. Ip contended that the Plaintiffs should indemnify them in respect of their alleged loss of profits. It was also contended that the Plaintiffs were unjustly enriched in regard to the alleged loss of profits and/or the subscription sums that were received pursuant to the Share Option Scheme.

41.  In her submissions, Ms. Ip also emphasized that Mr. Yu’s Promise covered the “additional” tax liabilities in respect of the subscribed shares and the Payments in Question. She submitted that the Plaintiffs should reimburse the 4^th Defendant for the “additional” tax paid to the Government in the amount of HK$122,286. Further, Ms. Ip also contended that the Plaintiffs should make restitution in respect of the subscription sum of HK$564,000.

D. Legal Principles on Assessing Credibility

42.  In Lee Fu Wing v Yan Paul Po Ting [2009] 5 HKLRD 513 at 524, DHCJ Au (as Au JA then was) set out the well-established approach on assessing credibility. In the course of assessing the credibility of a party’s case, the Court shall consider the following matters:

(1) whether the party’s case is inherently plausible or implausible;

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

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

(4) the demeanour of the witnesses.

43.  In the context of adjudicating a dispute in relation to an alleged oral agreement or understanding, in Joint and Several Trustees of Yeung Wing Sing v Yeung Wing Sing & Anor [2021] HKCFI 2018, at para 26, Yvonne Cheng J pointed out that:

(1) contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) in deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) care should be taken in regard to the consistency of the witness's evidence with undisputed or indisputable evidence, and the internal consistency of the witness’s evidence;

(4) care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’s character; and

(5) witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

44.  The aforesaid approach is well-established: see eg Siu Miu Hua v Wu Ching Kuen [2024] HKCFI 232, para 84 (per Keith Yeung J); Hui Chi Ming v Koon Wing Yee [2023] HKCFI 93 at para 147; Salleh Abu Baker v Anway Ltd [2021] HKCFI 3407 at para 12 (per Recorder William Wong SC). I will apply the same in assessing the credibility of the parties’ case and their assertions.

E. The Plaintiffs’ Claims against the 2^nd and 4^th Defendants in the Original Action

E1. Nature of the Payments in Question

45.  The foremost issue to determine is the nature of the Payments in Question. Once this issue is determined, most of the Plaintiffs’ contentions fall away.

46.  For the following reasons, I agree with Mr. Brown and Ms. Ip that the Payments in Question were not “remuneration” at all. Instead, they were, in substance, “reimbursement” paid to the 2^nd, 3^rd and 4^th Defendants pursuant to the Promise that Mr. Yu made to them on the Plaintiffs’ behalf. I have no doubt that the 2^nd and 4^th Defendant’s case is true and credible.

47.  First of all:-

(1) The Internal Memo dated 2 January 2019 is the best contemporaneous documentary evidence that records the relevant events. This document came into existence before the present dispute emerged. I have no reason to doubt the truthfulness of its contents.

(2) The Internal Memo recorded that:-

(a) The named employees, ie the 2^nd, 3^rd and 4^th Defendants, were committed to assist the 1^st Plaintiff in defending a hostile takeover (which apparently referred to the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen back in 2017).

(b) These employees made valuable contributions to help preserve the value of the 2^nd Plaintiff to its shareholders.

(c) The previous senior management (which apparently referred to Mr. Yu) promised to pay the tax incurred.

(d) The sums proposed to be paid were (i) HK$880,000 (the 2^nd Defendant); (ii) HK$660,000 (the 3^rd Defendant); and (iii) HK$200,000 (the 4^th Defendant). The amounts in question were in line with the deemed tax liabilities arising from the subscription exercise on 14 June 2017[8].

(e) The 1^st Defendant had verified the assertions made by the 2^nd, 3^rd and 4^th Defendants, and he confirmed that the board of directors at the time agreed to the arrangement in question. Thus, he implemented the same.

(3) When the contents of the Internal Memo and the words written by the 1^st Defendant were understood in context, it is plain to me that:-

(a) Mr. Yu did make the Promise. This was the reason why the 2^nd, 3^rd and 4^th Defendants agreed to exercise the option under the Share Option Scheme. The underlying agenda was to assist the Plaintiffs to resist or stave off the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen. Against this background, the Plaintiffs agreed to reimburse the tax liabilities arising from the subscription exercise.

(b) The 1^st Defendant did verify the matter. He found out that the previous board of directors (of which Mr. Yu was a co-chairman) in fact agreed to the arrangement. In the circumstances, the 1^st Defendant decided to honour the Promise.

48.  Second, apart from the Internal Memo, the 2^nd and 4^th Defendants’ case is corroborated by other contemporaneous documents. For instance:-

(1) As evidenced by the letter dated 15 June 2017 from Messrs Ma Tang & Co, apart from the 2^nd, 3^rd and 4^th Defendants, a number of directors and/or senior officers of the Plaintiffs, including Mr. Ju Mengjun, Mr. Lo Kou Hong and Mr. Wen Xin Nian, also exercised their share option simultaneously. This could not be a sheer co-incidence. There was every reason to believe that the senior management sought to utilize and maximize the voting rights attached to the subscribed shares for the purpose of defeating or staving off the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen.

(2) When the 2^nd Defendant received the cheque of HK$880,000 on 31 January 2019, he signed an undertaking in writing that he would provide the documents in respect of the tax liabilities in question. This showed that the Payment in Question was made for the purpose of reimbursing his deemed tax liabilities arising from the subscription exercise on 14 June 2017.

(3) When the 1^st Plaintiff filed the annual returns in respect of the remuneration received by the 2^nd and 4^th Defendants for the financial year ended 31 March 2019, they could have reported to the Inland Revenue Department that the Payments in Question were bonus[9]. However, the 1^st Defendant did not do so. This showed that the internal staff of the 1^st Plaintiff[10] did not regard the Payments in Question as discretionary bonus.

(4) The 2^nd Plaintiff’s annual reports for the financial years of 2017/2018 and 2018/2019 show that the Payment in Question received by the 2^nd Defendant (ie the sum of HK$880,000) was not part of the 2^nd Defendant’s remuneration. Had the Plaintiffs’ internal staff and auditors considered that the said sum was a discretionary bonus, the figure in respect of the 2^nd Defendant’s remuneration in 2018/2019 would have increased or inflated drastically when compared to the previous year. This was not the case.

49.  Third, the 2^nd and 4^th Defendants’ case is consistent with and supported by the objective circumstances and inherent probabilities:-

(1) The hostile takeover initiated by Wah Yan and/or Wisdom Eighteen was well-documented and indeed incontrovertible. As evidenced by the 2^nd Plaintiff’s announcement on 5 June 2017, the 2^nd Plaintiff’s board of directors sought to convince its shareholders to reject the Takeover Offer on the grounds that the terms thereof were unfair and unreasonable[11] and that there would be no business synergy and commercial advantage[12].

(2) In the circumstances, it was believable that the 2^nd Plaintiff’s directors, including Mr. Yu (who was the co-chairman of the board), would seek to gather support from the 2^nd Plaintiff’s shareholders as well as share option holders, including the 2^nd, 3^rd and 4^th Defendants.

(3) On the available evidence, I accept Mr. Brown and Ms. Ip’s submissions that the 2^nd, 3^rd and 4^th Defendants subscribed shares in the 2^nd Plaintiff on 14 June 2017 because they wished to utilize the shareholders’ rights attached to the subscribed shares for the purpose of resisting or staving off the hostile takeover.

(4) Since the subscription exercise was for the purpose of advancing an objective that the Plaintiffs’ senior management wished to achieve, it made commercial sense for Mr. Yu to promise and/or agree that the tax liabilities arising from the subscription exercise would be borne by the Plaintiffs.

(5) I am of the view that the inherent probabilities lie in favour of the 2^nd and 4^th Defendants’ case. Their case makes perfect commercial sense to me and is, in my view, credible and probable.

50.  Fourth, I accept the 2^nd and 4^th Defendants’ evidence regarding the events relating to Mr. Yu’s Promise, the hostile takeover and the Payments in Question. Although I reject the 2^nd and 4^th Defendants’ contentions in regard to the counterclaims (see Section F below), I am not of the view that they concocted a bogus claim out of the blue. In my view, the 2^nd and 4^th Defendants were honest, forthcoming and cooperative witnesses who were willing to make concessions and who endeavoured to inform the Court about the relevant events to the best of their knowledge.

51.  Fifth, the evidence of the Plaintiffs’ only witness, namely Mr. Tusi Kwok Hing, adds very little to the Plaintiffs’ case. He only joined the Plaintiffs in around October 2022. He was not involved in and/or privy to the matters relating to the hostile takeover, the Promise and the Payments in Question. He did not know much about the matters relating to the internal corporate procedures that were adopted at the material times. In the circumstances, Mr. Tsui Kwok Hing only made some bare assertions that were argumentative. This was unhelpful.

52.  Sixth, I do not accept the Plaintiffs’ contention based (i) the fact that the 1^st Plaintiff reported the Payments in Question to the Inland Revenue Department (“IRD”); and (ii) the opinion of IRD. In this connection:-

(1) It is not in dispute that the 1^st Plaintiff reported the Payments in Question in favour of the 2^nd and 4^th Defendants to the IRD, and the 2^nd and 4^th Defendants admitted that the IRD demanded them to pay tax in respect of the Payments in Question. Relying on these undisputed facts and admissions, Mr. Wilfred Tsui (for the Plaintiffs) submitted that the Payments in Question were remuneration, not reimbursement.

(2) However, whilst the present action is not a tax litigation that concerns whether the Payments in Question were chargeable or taxable, it is understandable why the administrative staff of the 1^st Plaintiff would, out of abundance of caution, report the Payments in Question to the relevant Government authority.

(3) More importantly, it did not appear that the IRD took a firm view of the matter. It was the 2^nd Defendant’s uncontradicted evidence (which I accept) that upon his protest or objection, the IRD withdrew its tax demand against him, and he did not pay any “additional” tax in respect of the sum of HK$880,000. Had the 4^th Defendant strenuously protested or objected, the IRD might have withdrawn the demand against her as well[13].

(4) In any event, while the IRD approached the matter from a tax perspective, the task of this court is to ascertain the true nature of the Payments in Question based on the objective intention of the parties. In my view, the opinion of the IRD was not conclusive at all.

(5) Be that as it may, there is no evidence showing (i) the matters that the IRD took into account; and (ii) the analysis adopted by the IRD. In the premises, I am not of the view that the stance of IRD sheds much light on the substantive dispute between the parties.

53.  For all the above reasons, I do not accept the Plaintiffs’ case that the Payments in Question were “discretionary bonus”.

54.  Whilst Mr. Wilfred Tsui (for the Plaintiffs) reminded me that the 2^nd, 3^rd and 4^th Defendants asked the 1^st Defendant to grant them “discretionary bonus” in the Internal Memo, one must read the contents of this document as a whole. Moreover, I cannot turn a blind eye to the objective circumstances surrounding the Internal Memo as well as the events that led to the existence of this document.

55.  In light of the contents of the said Internal Memo and the objective circumstances, I am of the view the phrase “discretionary bonus” was a complete misnomer. It was unfortunate that the person who drafted the Internal Memo (ie the 2^nd Defendant) adopted a phrase that caused so much confusion. However, it is understandable why commercial parties may be casual about their language when the dispute has not yet emerged.

56.  I reiterate that the Promise made ample commercial sense. Mr. Yu made the Promise to the 2^nd and 4^th Defendants because he wished to solicit their support for defeating or staving off the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen. I do not believe that the 2^nd and 4^th Defendants coincidentally exercised their share options at a time when the Plaintiffs were effectively at war with Wah Yan and/or Wisdom Eighteen. This was too much a sheer coincidence.

57.  In this connection:-

(1) It was 2^nd Defendant’s evidence that in light of the uncertainty arising from the Takeover Offer, he exercised his share option on 14 June 2017 only because he wished to assist the Plaintiffs to defeat or stave off the hostile takeover, and he would not have done so but for Mr. Yu’s Promise.

(2) The 4^th Defendant said that whilst she had to pay a considerable subscription sum, she could not sell the subscribed shares as per her wish. She stressed that her intention was to protect the Plaintiffs, and she would not have subscribed the shares but for Mr. Yu’s Promise.

(3) The 2^nd and 4^th Defendants’ evidence makes sense to me. I accept the same.

58.  Bearing in mind the commercial reality, I find that the Plaintiffs did not grant any “discretionary bonus” in favour of the 2^nd and 4^th Defendants in the course of their services as employees. Instead, what the Plaintiffs did was to reimburse the 2^nd and 4^th Defendants regarding the expenses (ie the deemed tax liabilities) that they incurred as a result of taking steps to facilitate the Plaintiffs to defeat or stave off the hostile takeover.

E2. Was it necessary to obtain the approval of the Remuneration Committee?

59.  Following the aforesaid analysis and conclusion, I am of the view that it was unnecessary for the Remuneration Committee to approve the Payments in Question at all.

60.  In light of the circumstances faced by the Plaintiffs at the time, the Payments in Question were not concerned with the employment benefit enjoyed by the 2^nd and 4^th Defendants. The Payments in Question were expenses incurred as a result of implementing the Plaintiffs’ plan to resist or stave off the hostile takeover.

61.  In order to gather support from the 2^nd, 3^rd and 4^th Defendants, it was necessary to incur tax liabilities on the shares subscribed on 14 June 2017. This was why the Plaintiffs, through Mr. Yu, promised and/or agreed to reimburse the tax paid by the 2^nd and 4^th Defendants.

62.  In the circumstances, I cannot see how it can be said that the Payments in Question were remuneration or benefit that arose from the 2^nd and 4^th Defendants’ course of employment. This suggestion is to elevate form over substance. I cannot accept the same.

63.  Further, there is no suggestion that the matters relating to the hostile takeover fell within the prerogative of the Remuneration Committee. This could not be the case.

64.  In the premises, I reject the Plaintiffs’ suggestion that it would be necessary for the Remuneration Committee to approve the Promise made by Mr. Yu and/or the Payment in Question.

65.  For completeness, I also reject the Plaintiffs’ suggestion that the policy regarding the Remuneration Committee applied to the 4^th Defendant. Whilst the 4^th Defendant was employed by the 1^st Plaintiff as opposed to the 2^nd Plaintiff, it was the 4^th Defendant’s evidence that her actual job duties were administrative in nature. The 4^th Defendant’s evidence in this regard was neither contradicted nor seriously challenged. In any event, it appeared to me that the 4^th Defendant was a truthful and reliable witness. In the premises, I accept Ms. Lillian Ip’s submissions that the 4^th Defendant was not part of the Plaintiffs’ senior management, and accordingly she was not subject to the policy regarding the Remuneration Committee (which only applied to directors and senior management).

E3. The Question of Authority

66.  At this juncture, I address the parties’ contentions regarding the question of authority.

67.  For the following reasons, I reject the Plaintiffs’ contention that Mr. Yu and/or the 1^st Defendant did not have the authority to make the Promise and/or to take steps to honour the Promise.

The Promise

68.  As explained, the Promise concerned the expenses incurred in defeating the hostile takeover, as opposed to some mere benefit arising from the 2^nd and 4^th Defendants’ employment. This must be a matter that fell within the authority of the Plaintiffs’ board of directors.

69.  As evidenced by the words that the 1^st Defendant wrote on the Internal Memo, the 2^nd Plaintiff’s board of directors agreed to the arrangement in question. As mentioned, I am of the view the Internal Memo is a genuine contemporaneous document, and the contents thereof are reliable.

70.  In this connection, it did not appear that the 1^st Defendant had a direct personal interest in the matter, and it was inherently unlikely that he would maliciously manufacture some false contemporaneous records before any dispute occurred.

71.  In the premises, I believe that back in 2017, the 2^nd Plaintiff’s board of directors was agreeable to the Promise made by Mr. Yu.

72.  It is important to note that Mr. Lo Kou Hong and Mr. Wang Qi were at all material times[14], and still are, the 2^nd Plaintiff’s directors. They were in a position to inform the court whether the hand-written words of the 1^st Defendant were true or not (ie whether the 2^nd Plaintiff’s board of directors agreed to the arrangement in relation to the Promise). Mr. Lo and Mr. Wang knew how the 2^nd Plaintiff’s board of directors responded to the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen. They also knew whether Mr. Yu was assigned the task of maximizing the chance of defeating the hostile takeover.

73.  However, for reasons best known to the Plaintiffs’ current management, neither Mr. Lo nor Mr. Wang testified in these proceedings. When Mr. Tsui Kwok Hing[15] was cross-examined, he explained that whilst Mr. Lo was old and fragile, Mr. Wang lived in the Mainland and had to travel to Canada from time to time. These bare assertions were simply unconvincing. When Mr. Tsui Kwok Hing was re-examined, he further said that at a recent directors’ meeting that took place in December 2024 or January 2025, Mr. Wang Qi indicated that he did not know about the matters alleged by the Defendants[16]. If what Mr. Tsui Kwok Hing said were true, there was every reason why Mr. Wang should testify. Mr. Wang could have told the Court that he was not aware of the existence of the Promise. His testimony would support the Plaintiffs’ case and contradict the 2^nd and 4^th Defendants’ case.

74.  In these premises, the court should draw an adverse inference against the Plaintiffs: see South China Securities Ltd v Lam Kwen Yuen [2012] 5 HKLRD 524 at para 7 (per DHCJ Lisa Wong SC, as Lisa Wong J then was); and Tullet & Tokyo International Securities v. APC Securities Co. Ltd [2001] 2 HKKRD 356, at 365B-J (per Le Pichon JA).

75.  I am of the view that had Mr. Lo and Mr. Wang testified, they would have exposed the unfavourable facts in relation to the Promise, the task assigned to Mr. Yu, the authority of Mr. Yu and the stance of 2^nd Plaintiff’s board of directors in relation to the Promise. In my view, this was the reason why the Plaintiffs chose not to adduce evidence from Mr. Lo and Mr. Wang. Tellingly, they chose to put forward Mr. Tsui Kwok Hing as their only witness when Mr. Tsui had no direct personal knowledge of the matters relating to the present dispute at all.

Honouring the Promise

76.  As regards the application for payments in January 2019, Mr. Brown pointed out that (i) the Internal Memo (pursuant to which the application for payment was made) was under the 1^st Plaintiff’s letterhead; and (ii) the Payments in Question were made by the 1^st Plaintiff (see the cheques drawn on 31 January 2019). In other words, the contemporaneous documents showed that the payment application was made to and granted by the 1^st Plaintiff.

77.  Mr. Brown then went on to point out that at the material times (ie January 2019), the only directors of the 1^st Plaintiff were the 1^st and 2^nd Defendants[17]. Since the 2^nd Defendant did not approve and could not have approved his own payment application[18], it must be the case that 1^st Defendant, who was the only available director of the 1^st Plaintiff at the time, dealt with the matter alone.

78.  I see the force of Mr. Brown’s contention. The policy in respect of the Remuneration Committee came into existence due to the requirements under the Listing Rules[19], and the same was only applicable to the 2^nd Plaintiff (which is a listed company). I disagree with the Plaintiffs’ suggestion that the payment application under the Internal Memo (which was made to the 1^st Plaintiff) might only be processed by the Remuneration Committee of the 2^nd Plaintiff.

79.  In this connection, both Mr. Tsui Kwok Hing and the 4^th Defendant told the court that the Remuneration Committee only met once a year, and the meetings (which took place in a cursory manner) did not last longer than 10 minutes. In these circumstances, it does not appear to me the Remuneration Committee was expected to deal with the matter.

80.  More fundamentally, the 1^st Plaintiff and the 2^nd Plaintiff were different entities. Since the payment application was made to the 1^st Plaintiff, I cannot see why the only available director of the 1^st Plaintiff at the time, namely the 1^st Defendant, might not deal with the matter. I cannot accept the suggestion that the only available director of the 1^st Plaintiff had no authority at all. This suggestion is simply absurd.

Legality and Proprietary

81.  I also reject Mr. Wilfred Tsui’s contention that Mr. Yu’s Promise was improper and/or not for the benefit of the Plaintiffs.

82.  First of all, the Plaintiffs did not plead illegality, improper purpose and/or impropriety.

83.  In any event, I am satisfied that the Promise and/or the agreement in relation thereto were indeed proper, lawful and legitimate.

(1) In light of the advice from VBG, the 2^nd Plaintiff’s board of directors was entitled to take the view that (i) the Takeover Offer was unfair to the shareholders of the 2^nd Plaintiff; and (ii) the hostile takeover would not be advantageous to the 2^nd Plaintiff as well as its subsidiary companies (including the 1^st Plaintiff), given the lack of business synergy and commercial advantage.

(2) In this connection, it was the 4^th Defendant’s evidence that based on her research back in 2017, it was discovered that:-

(a) A well-known commentator, namely Mr, David Webb, published an influential article titled “The Engima Network: 50 stocks not to on (迷網五十)”. There, it was pointed out that 50 listed companies (one of which was Wah Yan) were involved in dubious dealings, and they used a convoluted structure to conceal their true relationship with each other and the true beneficial ownership behind the scene.

(b) After the said article was published, the Securities and Futures Commission published an announcement indicating that it would investigate the matter.

(3) I accept the 4^th Defendant’s evidence. She was able to provide the details of the matter. It is not in dispute that the listing status of Wah Yan was subsequently suspended, and still suspended as of the time when the present trial took place. Moreover, some of Wah Yan’s directors have been prosecuted by the Securities and Futures Commission. Using the words of the 4^th Defendant, Wah Yan was not a bona fide and/or legitimate company.

(4) In the circumstances, there was every reason why the management of the Plaintiffs did not want the Plaintiffs to have any dealing and/or association with Wah Yan and/or Wisdom Eighteen. To safeguard the interest of the general body of shareholders as well as the interest of the 2^nd Plaintiff and its subsidiary companies, the 2^nd Plaintiff’s board of directors had legitimate reasons to explore means for defeating and/or staving off the hostile takeover.

Advancing Personal Interest Only?

84.  Lastly, Mr. Wilfred Tsui (for the Plaintiffs) suggested that the 2^nd and 4^th Defendants merely sought to advance the personal interest of themselves and Mr. Yu, as opposed to the interest of the Plaintiffs.

85.  I do not accept this suggestion. It was true that if the hostile takeover succeeded, Mr. Yu as well as the 2^nd and 4^th Defendants might lose their positions as directors and corporate officers. However, this did not contradict the fact that the hostile takeover was against the interest of the Plaintiffs as well as the interest of the general body of shareholders. In other words, the interest of the Plaintiffs, the 2^nd Plaintiff’s shareholders, Mr. Yu, the 2^nd Defendant and the 4^th Defendant simply aligned. Thus, when the 2^nd and 4^th Defendants helped resist the hostile takeover, they did advance the interest of the Plaintiffs and the general body of shareholders.

Sum Up

86.  For all the above reasons, the Plaintiffs have failed to show that the Payments in Question were unauthorized. The Plaintiffs have also failed to show a valid factual basis for recovering the Payments in Question. Accordingly, the Plaintiffs’ claims must fail.

87.  For the reasons set out in Sections E4 and E5 below, I am also of the view that there is no room for the Plaintiffs to rely on the causes of action based on breach of fiduciary duties and/or duty care as well as unjust enrichment. In my view, the Plaintiffs’ reliance on these causes of action is misplaced.

E4. Breach of Fiduciary Duties and/or Duty of Care?

88.  Mr. Brown and Ms. Ip were correct in pointing out that the 2^nd and 4^th Defendants could not have breached any fiduciary duties and/or duty of care.

89.  Pursuant to the Internal Memo, the 2^nd and 4^th Defendants merely requested the 1^st Defendant to make the Payments in Question to honour the previous Promise made by Mr. Yu. It was for the 1^st Defendant to process and deal with the payment application. I cannot see how the 2^nd and 4^th Defendants could breach the duties required of them (if any) by making a payment application.

90.  I am unable to discern any wrongdoing and/or inappropriate conduct on the part of the 2^nd and 4^th Defendants. The present case does not involve a scenario where an employee deceives his/her employer by making a bogus payment application.

91.  For the reasons elaborated in Sections E1 to E3 above, I am of the view that the payment application under the Internal Memo was bona fide, legitimate and justified. As the 1^st Defendant confirmed (see his hand-written words on the Internal Memo), he had verified the matters alleged by the 2^nd and 4^th Defendants. This was why he approved the application.

92.  It is also noteworthy that as of the date when the application for payment was made (ie 2 January 2019[20]), the 4^th Defendant had already ceased to hold any position in the 1^st and/or 2^nd Plaintiffs. As such, she was incapable of owing any fiduciary duties and/or duty of care to them.

93.  For the above reasons, I reject the Plaintiffs’ case that there was any breach of duties on the part of the 2^nd and/or 4^th Defendants.

E5. Unjust Enrichment?

94.  I also reject the Plaintiffs’ claims based on unjust enrichment.

95.  In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at paras 67, Ribeiro PJ stated:-

“A useful framework for approaching such claims which was adopted by both parties involves asking four questions:

(a) Was the defendant enriched?

(b) Was the enrichment at the plaintiff's expense?

(c) Was the enrichment unjust?

(d) Are any of the defences applicable?”

96.  As the Plaintiffs have neither pleaded nor identified an applicable unjust factor, I am unable to see how it can be said that the enrichment in respect of the Payments in Question was “unjust” and thus recoverable. For this reason alone, the Plaintiffs’ claims based on unjust enrichment must fail.

97.  Furthermore, it is pertinent to refer to Shanghai Tongji (supra) at para 92. There, Ribeiro PJ pointed out that where an enrichment was received pursuant to a subsisting contractual obligation, any claim in respect thereof must be made in contract. His Lordship emphasized that to allow such a claim to be made in unjust enrichment would have the effect of subverting the contractual bargain made by the parties and this was impermissible as a matter of law: see also MJDS Holdings LLC v G&B Trading Ltd [2023] HKCFI 280 at para 51 (per Recorder Richard Khaw SC); and Portman Building Society v Hamlyn Taylor Neck (a firm) [1998] 4 All ER 202 at 208d-e.

98.  The 2^nd and 4^th Defendants did not expressly plead that their consensus with Mr. Yu (who acted on behalf of the Plaintiffs) constituted a contract. Nonetheless, based on the factual matters pleaded in their defences and counterclaims and their evidence (which I accept), there were indeed valid oral agreements between the parties[21].

99.  The terms of the oral contracts between the parties were such that whilst the 2^nd and 4^th Defendants should exercise their options under the Share Option Scheme and utilize the rights attached to the subscribed shares to oppose or stave off the proposals from Wah Yan and/or Wisdom Eighteen, the Plaintiffs should reimburse the costs and expenses incurred by the 2^nd and 4^th Defendants (including the tax liabilities) arising from the subscription exercise. In this sense, the Promise made by Mr. Yu was part of the contractual bargain between the parties.

100.  In the premises, when the 1^st Defendant caused the 1^st Plaintiff to make the Payments in Question in favour of the 2^nd and 4^th Defendants, he did not merely cause the Plaintiffs to fulfil a moral obligation; more importantly, the 1^st Defendant also caused the Plaintiffs to fulfil a legal obligation owed to the 2^nd and 4^th Defendants.

101.  Accordingly, the 2^nd and 4^th Defendants did receive the Payments in Question pursuant to some valid contracts. As a matter of law, there is no room for the Plaintiffs to seek recovery of the Payments in Question based on unjust enrichment. This is an additional reason why the Plaintiffs’ claims based on unjust enrichment must fail.

E6. Estoppel

102.  Even if the analysis set out in Sections E1 to E5 were incorrect, by operation of the doctrine of estoppel by convention, the Plaintiffs are anyhow estopped from challenging and/or disputing the lawfulness or proprietary in respect of the Payments in Question[22].

103.  In First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd & Anor (2012) 15 HKCFAR 569 at para 79, Lord Collins NPJ, referring to Unruh v Seeberger (2007) 10 HKCFAR 31 at paras 133-138, 142 and 150 (per Ribeiro PJ), stated:-

“In Unruh v Seeberger (2007) 10 HKCFAR 31 Mr Justice Ribeiro PJ re-stated the essential elements of an estoppel by convention:

(1) the parties entered into some transaction or legal relationship on the basis of an assumption that was shared by or common to them both, and it was the element of commonality of the assumption that marked out estoppel by convention as a distinct form of estoppel [133];

(2) it must be shown that assumption was communicated between the parties and acted upon, and there must be some mutually manifest conduct by the parties [135];

(3) there was no necessity for the parties to believe that the assumed state of affairs was true, nor was there any necessity for the parties to have been mistaken [136];

(4) what is important is for them to act in the belief, manifested by words or conduct, that they are both proceeding with the transaction on the basis of the same shared assumption [137];

(5) the contents of the common assumption must be sufficiently certain to enable the court to give effect to it [138];

(6) estoppel by convention is concerned with a common assumption relied upon as a basis upon which the persons sharing such assumptions enter into a transaction or legal relationship [142]; and

(7) there must be an attempt by one party to depart from the common assumption which departure would be unjust because of the part taken by him in occasioning its adoption by the other party, and the other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption if the opposite party were afterwards allowed to set up rights inconsistent with the assumption [150].”

104.  In the present case:-

(1) When Mr. Yu made the Promise and when the 2^nd and 4^th Defendants exercised the options to subscribe the shares in the 2^nd Plaintiff on 14 June 2017, they plainly acted on the common assumption that Mr. Yu acted within his authority and the dealing in question was authorized and valid.

(2) Had the parties suspected that the dealing was unauthorized and/or invalid, the 2^nd and 4^th Defendants would not have agreed to subscribe the shares, thereby incurring the liability to pay the subscription sums as well as the tax liabilities owed to the Government; nor would Mr. Yu, the 1^st Defendant and/or the 2^nd Plaintiff’s board of directors have foolishly bypassed the Remuneration Committee.

(3) In this connection:-

(a) I accept the 2^nd and 4^th Defendants’ evidence that they would not have subscribed the shares in the 2^nd Plaintiff on 14 June 2017 and retained the same had Mr. Yu not solicited their support and not made the Promise. I also accept the 2^nd and 4^th Defendants’ evidence that in light of the Promise, they bona fide sought to assist the Plaintiffs to resist or stave off the hostile takeover: see paragraph 57 above.

(b) There is not a shred of evidence showing that the Remuneration Committee would have objected to the Promise and/or the application for payments. Bearing in mind the undesirable consequences arising from the hostile takeover and the advice from VBG, this would be unthinkable.

(4) As the 2^nd and 4^th Defendants acted on the Promise and their positions had changed, it would be unconscionable for the Plaintiffs to seek to renege from the said common assumption

105.  I am satisfied that the requirements for establishing an estoppel by convention, including the existence of a common assumption based on mutually manifest conduct, the existence of a legal relationship (ie the oral agreements), detrimental reliance and unconscionablity, are satisfied.

E7. Findings and Conclusion

106.  For the reasons elaborated in Sections E1 to E6 above, I find that:-

(1) Mr. Yu did, on behalf of the Plaintiffs, make the Promise to the 2^nd, 3^rd and 4^th Defendants: see Section E1

(2) The 2^nd and 4^th Defendants did act on the Promise and accordingly subscribed 13,674,000 shares and 3,000,000 shares in the 2^nd Plaintiff on 14 June 2017. The purpose of the exercise was to put the 2^nd and 4^th Defendants in a position where they could help oppose or stave off the proposals made by Wah Yan, Wisdom Eighteen and/or their nominees or associated entities: see Sections E1 and E2.

(3) In light of the Promise, the 2^nd, 3^rd and 4^th Defendants applied for payments pursuant to the Internal Memo dated 2 January 2019. Having verified the assertions in the Internal Memo and having confirmed that the 2^nd Plaintiff’s board of directors at the time had approved the arrangement, the 1^st Defendant caused the 1^st Plaintiff to effectuate the Payments in Question in favour of the 2^nd, 3^rd and 4^th Defendants: see Section E2.

(4) The Payments in Question were not remuneration or benefit arising from the 2^nd, 3^rd and 4^th Defendants’ course of employment. Instead, the same were, in substance and in reality, expenses incurred by the Plaintiffs for defeating or staving off the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen: see Section E2.

(5) In the premises, it was unnecessary to seek approval from the 2^nd Plaintiff’s Remuneration Committee. In any event, the policy in question did not apply to the 4^th Defendant at all: see Section E2.

(6) Having said that the Payments in Question were expenses incurred for defeating or staving off the hostile takeover initiated by Wah Yan and/or Wisdom Eighteen, there was no reason why Mr. Yu and/or the 1^st Defendant might not make the Promise and/or take steps to honour the Promise: see Section E3.

(7) In this connection, I specifically find that:-

(a) The 2^nd Plaintiff’s board of directors at the time agreed to the Promise and the arrangement in relation thereto: see paragraphs 68 to 75.

(b) The 1^st Defendant, who was the only available director of the 1^st Plaintiff at the material times (ie January 2019), must have authority to approve the payment application made to the 1^st Plaintiff pursuant to the Internal Memo: see paragraphs 76 to 80.

(c) The Promise and the arrangement in relation thereto were lawful, legitimate and necessary for protecting the interest of the 2^nd Plaintiff, its subsidiary companies (including the 1^st Plaintiff) as well as the 2^nd Plaintiff’s shareholders: see paragraphs 81 to 83.

(d) The 2^nd and 4^th Defendants did seek to advance the interest of the Plaintiffs as well as the general body of shareholders: see paragraphs 84 to 85.

For these reasons, I reject the Plaintiffs’ suggestions that the Promise was made without authority and that the Payments in Question were effectuated without authority: see Section E3 (paragraphs 86 to 87).

(8) Furthermore:-

(a) The payment application under the Internal Memo was bona fide, legitimate and justified. The 2^nd and 4^th Defendants did not breach any fiduciary duties and/or duty of care: see Section E4.

(b) The Plaintiffs are not entitled to recover the Payments in Question on the basis of unjust enrichment. Whilst 2^nd and 4^th Defendants’ enrichment was not “unjust”[23] at all, the Payments in Question were made pursuant to valid oral contracts. Thus, there is no room for the Plaintiffs to bring claims against the 2^nd and 4^th Defendants based on unjust enrichment: see Section E5.

(9) In any event, under the doctrine of estoppel by convention, the Plaintiffs are estopped from contending that the Payments in Question were unauthorized and/or unlawful: see Section E6.

107.  In the premises, I dismiss the Plaintiffs’ claims against the 2^nd and 4^th Defendants in the original action herein.

F. The 2^nd and 4^th Defendants’ Counterclaims against the Plaintiffs

108.  I now deal with the 2^nd and 4^th Defendants’ counterclaims against the Plaintiffs.

F1. Agreement for Indemnification or Compensation?

109.  I am unable to see how the 2^nd and 4^th Defendants may seek indemnification in respect of their failure or inability to sell the shares in the 2^nd Plaintiff after the subscription exercise on 14 June 2017.

110.  The 2^nd and 4^th Defendants do not aver there was an express agreement to the effect that the Plaintiffs would indemnify and/or compensate them in regard to their inability to earn profits by selling the shares in the 2^nd Plaintiff before the hostile takeover lapsed.

111.  Insofar as the pleadings are concerned:-

(1) In paragraph 9 of his amended defence and counterclaim, the 2^nd Defendant pleaded that the Promise[24] only covered “the tax liability incurred by the 2^nd Defendant in exercising his options and holdings his shares”. In paragraph 22, the 2^nd Defendant went on to plead that although Mr. Yu “made no mention or suggestion[25] of any compensation or indemnification of other costs or losses that the 2^nd Defendant might subsequently incur” when he made the Promise[26], “the 2^nd Defendant…inferred[27] that the Plaintiffs would be prepared to indemnify him against any substantial costs or losses he might eventually incur”.

(2) Likewise, when the 4^th Defendant pleaded the Promise[28] in paragraph 9(2)(c) of her amended defence and counterclaim, she merely pleaded that “all costs and expenses incurred by the 4^th Defendant, including additional tax liabilities (if any) arising from the 4^th Defendant’s exercise of her Share Option, would be fully reimbursed”. It was not pleaded that Mr. Yu and/or the Plaintiffs agreed and/or promised to bear the loss of profits that the 4^th Defendant might suffer as a result of not being able to sell the shares that were subscribed[29].

(3) In the premises, the 2^nd and 4^th Defendants’ case for seeking indemnification is based on some inferred agreements.

(4) I am unable to infer that an agreement for indemnification and/or compensation existed at all. Whilst the alleged indemnification had significant financial ramifications, there was no plea suggesting that the method for calculating loss of profits was discussed or explored; nor was there any plea suggesting that the parties discussed or explored the cut-off day and/or the limit of the indemnification/compensation. In the circumstances, I cannot see any factual basis for inferring that an implied agreement for indemnification and/or compensation existed.

112.  As regards the evidence:-

(1) Insofar as the 2^nd Defendant is concerned:-

(a) In paragraph 10 of his witness statement, the 2^nd Defendant only said that when Mr. Yu asked him not to sell any shares, he asked him not to worry about any “expenses” incurred as a result of exercising his share option. However, it was his understanding that the “expenses” as well as the “loss” that he incurred would be covered or reimbursed.

(b) In my view, there is no room to conflate the concept of “expenses” with the concept of “loss of profits”. I cannot see how the 2^nd Defendant might come to an understanding that the Plaintiffs were under an obligation to indemnify any “loss of profit” that he might suffer.

(c) In paragraph 12 of his witness statement, the 2^nd Defendant also alleged that when Mr. Yu asked him not to sell any of the subscribed shares,, he told him that as long as the battle was won, “any and all monetary loss would be taken care of”.

(d) This alleged discussion does not feature anywhere in the 2^nd Defendant’s amended defence and counterclaim. In any event, it appears to me that the alleged discussion was vague, equivocal and uncertain. I do not accept that Mr. Yu, who was a seasoned businessman and/or business executive, would have agreed to compensate and/or indemnify the 2^nd Defendants under such a vague discussion. In light of the financial commitment, it was inherently unlikely that there was no express discussion as to the details of the arrangement, such as the method for calculating the loss, the cut-off date and the limit of the indemnification/compensation.

(e) When the 2^nd Defendant was cross-examined, he fairly admitted that his claims for compensation and/or indemnity were based on an inference, and he did not have any express discussion with Mr. Yu. For the reasons elaborated above, I am simply unable to infer that an implied agreement existed.

(2) As regards the 4^th Defendant:-

(a) In paragraph 27 of her witness statement, the 4^th Defendant said that when Mr. Yu made the Promise in June 2017, he assured her that (i) the Plaintiffs would reimburse her expenses and disbursement (including the additional tax liability, if any); and (ii) she would not suffer any personal loss by exercising the share option.

(b) Even assuming that the conversation took place in the way described by the 4^th Defendant, it did not follow that Mr. Yu agreed to indemnify the 4^th Defendant regarding her inability to earn profits by selling the shares. From an objective point of view, it does not appear to me Mr. Yu intended that the Promise should cover this and that there was a binding agreement in respect thereof.

(c) In this connection, the analysis and observations set out hereinabove are pertinent. I am not convinced that an experienced businessman and/or business executive like Mr. Yu would agree to indemnify the 4^th Defendant’s loss of profit without discussing the method of calculation, the cut-off day and the limitation. The alleged discussion that the 4^th Defendant seeks to rely on was far too vague and uncertain.

(d) In any event, when the 4^th Defendant gave oral evidence, she fairly accepted that she did not have any express discussion with Mr. Yu about her inability to earn profits by selling the subscribed shares. For the reasons elaborated above, I am unable to infer that an implied agreement for indemnification or compensation existed.

113.  In the premises, the 2^nd and 4^th Defendants did not genuinely believe there was a binding agreement to the effect that the Plaintiffs should be responsible for their failure and/or inability to earn profits by selling the shares subscribed on 14 June 2017.

114.  In this regard, I accept Mr. Wilfred Tsui’s submissions. Had such an agreement existed, the 2^nd and 4^th Defendants would have sought compensation and/or indemnification for loss of profits when they issued the Internal Memo back in January 2019. There was plainly no reason why the 2^nd and 4^th Defendants would have left the matter hanging in the air.

115.  For all the above reasons, I reject the 2^nd and 4^th Defendants’ suggestion that they are entitled to seek indemnification and/or compensation for loss of profits. I find that the Plaintiffs did not agree, and could not have agreed, to indemnify and/or compensate the 2^nd and 4^th Defendants in respect of their failure or inability to sell subscribed shares before the hostile takeover lapsed. No such agreement existed. Based on the available evidence, I am unable to infer that such an implied agreement existed.

F2. Unjust Enrichment?

116.  The 2^nd and 4^th Defendants also seek restitution against the Plaintiffs on the basis of unjust enrichment. For the following reasons, the claims are misconceived.

117.  First of all, the Plaintiffs were not “enriched” at the expense of the 2^nd and 4^th Defendants at all in regard to the alleged loss of profits. Even though the 2^nd and 4^th Defendants might have missed the opportunity to earn profits by selling the shares in a timely manner, it did not follow that the Plaintiffs were enriched in respect of the alleged loss of profits suffered by the 2^nd and 4^th Defendants. With respect, the claims based on unjust enrichment are not logical at all.

118.  Second, the 2^nd and 4^th Defendants have neither pleaded nor identified an applicable unjust factor.

119.  Third, there were valid oral agreements between the parties (see Section E5 above), and these oral agreements did not stipulate that the Plaintiffs should compensate or indemnify the 2^nd and 4^th Defendants regarding their inability to earn profits by selling the shares in the 2^nd Plaintiff before the hostile takeover lapsed (see Section F1 above).

120.  Fourth, insofar as the 4^th Defendant’s claim for restitution in respect of the subscription sum of HK$564,600 is concerned, she completely overlooks the facts that:-

(1) she paid the subscription sum to the 2^nd Plaintiff pursuant to a valid contractual arrangement under the subscription agreement; and

(2) pursuant to the contractual arrangement under the subscription agreement, she did receive 3,000,000 shares in the 2^nd Plaintiff and she has been retaining these shares.

In the premises, I cannot see how the 4^th Defendant may pursue a claim based on unjust enrichment: see Shanghai Tongji (supra) at para 92.

121.  For the above reasons, the 2^nd and 4^th Defendants’ counterclaims for restitution must fail.

F3. The Additional Tax Liabilities accrued on the Shares and Payments in Question

122.  As mentioned above, when the 2^nd Defendant gave evidence, he said that IRD demanded him to pay tax in respect of both (i) the 13,674,000 shares subscribed on 14 June 2017; and (ii) the Payment in Question in the amount of HK$880,000. However, upon his protest or objection, the IRD eventually withdrew the tax demand. Thus, he did not pay any additional tax at all.

123.  Unlike the 2^nd Defendant, the 4^th Defendant did not shrewdly protest or raise objection[30] when the IRD demanded her to pay tax in respect of (i) the 3,000,000 shares subscribed on 14 June 2017; and (ii) the Payment in Question in the amount of HK$200,000. As a result, she paid “additional” tax in the amount of HK$122,286[31].

124.  Following the findings and analysis set out in Sections E1 to E3 above, I am of the view that the 4^th Defendant is entitled to seek reimbursement for the sum of HK$122,286.

125.  In my view, the said “additional” tax expenses fell squarely within the Promise (which Mr. Yu made on behalf of the Plaintiffs). It was plain that the same were expenses incurred as a result of exercising the share option and facilitating the Plaintiffs to achieve the objective of resisting or staving off the hostile takeover.

126.  Whilst the 4^th Defendant primarily seeks to rely on the doctrine of unjust enrichment to claim the reimbursement, I am of the view that the correct legal basis of the claim is contract. As explained in paragraphs 98 to 99 above, based on the factual matters pleaded in the 4^th Defendant’s defence and counterclaim and based on the 4^th Defendant’s evidence (which I accept), there was a valid oral agreement between the parties.

127.  It was plain that the 4^th Defendant had agreed to Mr Yu’s request and accepted his Promise (which were made on the Plaintiffs’ behalf). As such, the oral agreement was such that whilst the 4^th Defendant should exercise the share option and utilize the voting rights attached to the shares to resist or stave off the hostile takeover, the Plaintiffs should reimburse all the costs and expenses incurred by the 4^th Defendant, including the additional tax liabilities (if any)[32]. In my view, the ingredients of a binding contract were adequately pleaded. In this connection, it is trite that a party is only required to plead the material facts, and he is at liberty to present in argument any legal consequence of which the facts permit: see Hong Kong Hua Qiao Co Ltd v Cham Ka Tai [2015] 4 HKC 167 at para 20 (per Kwan JA, as Kwan JA then was); and In re Vandervell’s Trust (No 2) [1974] 1 Ch 269 at 321H -322A.

128.  In the premises, I allow the 4^th Defendant’s counterclaim for reimbursement in respect of the “additional” tax expenses of HK$122,286.

F4. Declaration

129.  The 4^th Defendant also seeks a declaration to the effect that she lawfully received the sum of HK$200,000 from the 1^st Defendant. In light of the findings set out in Section E above, I accept that this is the position.

130.  However, having dismissed the Plaintiffs’ claims in the original action, the disputes between the parties have been resolved, and the present judgment speaks for itself. I am not persuaded that it is necessary to make the declaration proposed by the 4^th Defendant.

F5. Conclusion

131.  For the above reasons, I dismiss the 2^nd and 4^th Defendants’ counterclaims against the Plaintiffs, save that I allow the 4^th Defendant’s counterclaim for reimbursement in respect of the “additional” tax expenses in the amount of HK$122,286.

G. Orders, Disposition and Costs

G1. The Original Action and the Counterclaims

132.  I order that:-

(1) The Plaintiffs’ claims against the 2^nd and 4^th Defendants in the original action be dismissed.

(2) The Plaintiffs do jointly and severally pay the 4^th Defendant HK$122,286.

(3) Save as aforesaid, the 2^nd and 4^th Defendants’ counterclaims against the Plaintiffs be dismissed.

G2. Costs

133.  I am inclined to the view that it would be fair to order the Plaintiffs to pay 70% of the 2^nd Defendant’s costs and 80% of the 4^th Defendant’s costs in these proceedings to be taxed in accordance with the District Court scale if not agreed. I take this tentative view for the following reasons:-

(1) Whilst the 2^nd and 4^th Defendants succeed on the original action, the Plaintiffs largely succeed on the counterclaims (save and except the 4^th Defendant’s counterclaim for reimbursement in respect of the “additional” tax liabilities). In my view, the issues in the original action took up much more time and resources than the issues in the counterclaims. In order to reflect the relative success of the parties, I am inclined to the view that it would be appropriate to order the Plaintiffs to pay 70% of the 2^nd Defendant’s costs and 80% of the 4^th Defendant’s costs.

(2) The Plaintiffs commenced the original action in the District Court[33]. However, they were forced to fight these proceedings in the High Court as the 2^nd Defendant brought a counterclaim that went beyond the District Court’s jurisdiction[34]. It transpires that the 2^nd Defendant’s counterclaim is dismissed. In the premises, I am inclined to the view that it would be appropriate to order costs to be taxed on the District Court scale.

134.  Accordingly, I make a costs order nisi that the 1^st and 2^nd Plaintiffs do jointly and severally pay 70% of the 2^nd Defendant’s costs and 80% of the 4^th Defendant’s costs in these proceedings (including all costs previously reserved) to be taxed (if not agreed) on the District Court scale (with certificate for counsel).

G3. Other Matters

135.  I express my gratitude to Mr. Wilfred Tsui, Mr. Toby Brown and Ms. Lillian Ip for their helpful assistance.