GOLDBAY FORTIS LTD v. RICH RESOURCE DEVELOPMENT LTD

HCA 2449/2013 and
HCA 371/2014
(Heard Together)

[2021] HKCFI 1684

HCA 2449/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2449 OF 2013

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JUDGMENT

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A.     Introduction

1.  These two actions[1] arose from a document dated 12 September 2013 (the “Memorandum”[2]).  The Memorandum related to an intended sale and purchase of (i) the “Commercial Development” at No 8 Clear Water Bay (the “Commercial Development”) and (ii) 49% interest in the “Car Park Development” at the same address (the “Car Park Development Interest”) (collectively the “Properties”).  The intended sale and purchase subsequently never materialized.  Parties are in dispute as to their respective obligations thereunder, and their liabilities arising. 

2.  Mr Jason Pow SC and Mr Victor Dawes SC leading Mr Danny Tang appeared for Goldbay Fortis Limited (“GF”).  Mr C Y Li SC leading Mr Jeremy Kwong and Mr Harold Lai appeared for Rich Resource Development Limited (“RR”) the defendant in HCA 2449. Mr Chua Guan Hock SC leading Ms Sharon Yuen appeared for Chun Wo Development Holdings Limited (“Chun Wo”, subsequently became known as Asia Allied Infrastructure Holdings Limited, “Asia Allied”, and unless specified or when citing counsel’s submissions, I use Chun Wo to denote both), the defendant in HCA 371.

B.     The parties

3.  GF is an indirect wholly owned subsidiary of CCT Fortis Holdings Ltd (“CCT”). CCT is a company listed on the main board of the Hong Kong Stock Exchange.  Mr Mak Shiu Tong Clement (“Clement Mak”) is a director of GF and the Chairman of CCT.

4.  Chun Wo is a listed company.  It is part of a group of companies (“Chun Wo Group”).  RR is at all material times an indirect wholly-owned subsidiary of Chun Wo. Chun Wo Property Development Ltd (“CWPDL”) and Chun Wo Construction & Engineering Co Ltd (“CWC&E”) are two other of its subsidiary companies.  Mrs Christina WH Pang (“Christina Pang”) and her son Mr Dominic Pang (“Dominic Pang”) are respectively an Executive Director and a Director of Chun Wo.  Mr Poon Chi Choi (“Anthony Poon”) and Mr Jeff Leung (“Jeff Leung”) were at the material time respectively a Director and Development Manager of CWPDL.  Mr Sammy Cheung (“Sammy Cheung”) was at the material time a Contracts Manager of CWC&E.

5.  According to the Annual Return of RR made up to 2 August 2013, the total nominal value of the authorized share capital of RR was HK$10,000.  Two shares of nominal value of HK$1 each had been issued, one to Talent Ascent Development Limited, and the other to To Kai Yin.  At the material time, its directors were Dominic Pang, Kwok Yuk Chiu Clement and To Kai Yin.

6.  In the Memorandum, GF signed as the purchaser.  RR signed as the vendor.  Clement Mak represented GF in the process of negotiation. On the RR side, Jeff Leung was the main representative, though there were others who had attended meetings (notably Christina Pang, Anthony Poon and Sammy Cheung).  The matters had also been reported to Dominic Pang, though he himself did not attend any meeting with GF.    

C.     The Properties

7.  The MTR Corporation Limited (“MTRC”) was the registered owner of New Kowloon Inland Lot No 6179 (the “Lot”) on which No 8 Clear Water Bay was built and now situates.

8.  By an agreement entitled “Choi Hung Park and Ride Development — Development Agreement” dated 13 August 2001 made between MTRC (in effect as the government grantee), RR (as the developer) and Chun Wo (as the guarantor) (the “Development Agreement”), the parties agreed to develop the Lot according to the terms of the same.

9.  The complex ultimately developed (the “Development”) comprised a residential tower (with a number of domestic units), the Commercial Development (called the Infinity 8 which is a shopping arcade) and the Car Park Development (with upwards of 500 car parking spaces).  Occupation permit was issued on 23 December 2005.  Certificate of Compliance was issued on 21 April 2006.

10.  Upon completion of the Development, MTRC became the registered owner of the domestic units, the Commercial Development and the Car Park Development.  Chun Wo was the beneficial owner of the Commercial Development.  The domestic units soon came to be sold, whilst the Commercial Development and the Car Park Development were at that stage rented out.

11.  According to the Development Agreement, RR was appointed the sales agent of MTRC for the sale of the Commercial Development excluding the Car Park Development.  Any such sale required MTRC’s approval[3].

12.  At the time of the Memorandum, there were on the Commercial Development 24 shops which had already been divided up (the “Shops”).  There was also one advertising signage on the external wall (“Signage”).  There was at that stage no Sub‑Deed of Mutual Covenant for the Commercial Development.

13.  By a Commercial Management Agreement also dated 13 August 2001 (“Commercial Management Agreement”), RR and MTRC formed a joint venture (the “Joint Venture”) to let and ‌operate the Car Park Development with RR having 49% interest in the Joint Venture.  According to Clause 8 of the same, RR could only sell its Car Park Development Interest to a third party after MTRC did not accept RR’s offer to sell the same (and vice versa if MTRC intends to sell)[4].

D.     The Memorandum and the “earnest money”

14.  There is no dispute between the parties that on 12 September 2013, the Memorandum was signed.  It was signed by Clement Mak on behalf of GF, and Jeff Leung on behalf of RR.  The signatures were witnessed by Mr Pierre Wong (“Pierre Wong”).  Pierre Wong was the Managing Director & Executive Director of Midland Holdings Ltd (“MHL”) and the Strategic Director of Midland IC&I Ltd (“Midland IC&I”, and together with MHL, the “Midland Group”).

15.  In respect of the Memorandum:

 (a)  It is in Chinese;

 (b)  It is on one single sheet of paper (one side);

 (c)  At the top of that sheet of paper is the photocopy image of a cheque for the payment of earnest money (the “Earnest Money Cheque” and the “Earnest Money”);

 (d)  In respect of the Earnest Money Cheque:

 (i)  it is dated 11 September 2013;

 (ii)  the payee (written in manuscript) is “Gallant Y.T. Ho & Co” (“GH”);

 (iii)  the amount is HK$8,000,000;

 (iv)  the payer is Goldbay Capital Limited;

 (e)  Immediately underneath the photocopy image of the Earnest Money Cheque are the following terms:

「物業地址: (1) 清水灣道8號匯八坊商場

(2) 停車場49%之收益權

    *以上之支票為買方購入以上兩項物業之誠意金，賣方同意給予買方優先購買權，而該物業總成交價為港幣$399,990,000.00，賣方會安排代表律師草議該份買賣合約，而在該段時間內買賣雙方必須保密，但若雙方最終不能就正式買賣合約的條款達成一致協議，賣方有權取消本交易，並於七天內退還上述之支票給買方。買賣雙方同意不會向另一方追討任何因此而產生的支出及損失。」

 (f)  Underneath those terms are the signatures for and on behalf of the purchaser and the vendor, and that of the witness.

E.     The parties’ pleaded cases

16.  I have previously summarized parties’ respective pleaded cases[5]. In a nutshell, GF claims that RR has wrongfully repudiated the Memorandum by wrongfully terminating it; acting in bad faith with a view to depriving RR of its pre‑emptive right thereunder and to selling the Commercial Development to High Peace Corporation Limited (“High Peace”) at a higher price; and failing to keep the transaction with RR confidential.  For those alleged breaches, GF commenced HCA 2449 against RR.  Subsequently, GF commenced HCA 371 against Chun Wo, for having allegedly procured those alleged breaches by RR. 

17.  As summarized and opened upon by Mr Li, RR denies GF’s allegations.  RR admits only that it entered into the Memorandum but that no agreement was made as the parties could not agree on terms.  Also, any alleged agreement concerning the sale and purchase of the Properties was subject to approval by MTRC and/or in the nature of an agreement to agree and not supported by consideration.  RR in turn alleges that GF has procured or induced MTRC to breach the contracts with RR concerning the Commercial Development.  It further alleges that GF has falsely and maliciously slandered RR’s title to the sale proceeds of the Commercial Development.  It as a result counterclaims against GF for damages.

18.  Chun Wo denies GF’s claim on various grounds.  They include absence of valuable consideration, any agreement being void for uncertainty, the Memorandum being unenforceable for want of formality as required by section 3(1) of the Conveyancing and Property Ordinance, Cap 219 (“C&PO”), and that in the absence of a complete and binding agreement between GF and RR, there was neither wrongful repudiation nor breach of contract by RR, so that Chun Wo could not have procured any breach of the same.  It raises the further or alternative plea that the termination of the Memorandum was in exercise by RR of its express right under the same to terminate, so that there was no repudiation on RR’s part.  It also counterclaims for slander or alternatively libel.

19.  In reply, GF makes the alternative plea that if the Memorandum were invalid or unenforceable, RR and Chun Wo are estopped from denying the existence, validity or enforceability of the same.

F.     The Subpoena duces tecum

20.  I refer to my earlier decision of 26 September 2018[6]. GF had previously applied for and been granted 8 writs of subpoena duces tecum (the “Writs of Subpoena”).  They are in two sets.  Each set of 4 is materially the same, against each of the MTRC, High Peace, Mr David K L Law of Messrs Law & Co (“L&C”, solicitors acting for High Peace), and Mr Joseph Chung of Messrs Deacons (“Deacons”). 

21.  Despite disagreement at the early stage as to whether some of the Writs of Subpoena were liable to be set aside, ultimately documents have been produced in answer.  All of the Writs of Subpoena were discharged on the first morning of the trial.

22.  The documents produced in answer are relevant.  Of particular significance are certain correspondence between RR and MTRC, between RR and Deacons, and a number of attendance notes prepared by Deacons.  I will refer to them as appropriate.

G.     Facts that are not in dispute

23.  The case involves quite some details.  A large amount of correspondence between the parties and their respective legal representatives have been adduced.  I will not (and cannot) set all of them out.  Below are some of the material facts that are not in dispute[7]. I will consider the disputed facts later. 

24.  The undisputed facts are mostly gleaned from contemporaneous documents (and some from the documents produced in answer to the Writs of Subpoena).  It is necessary to set them out in some details as they are relevant to my later consideration of the issue as to whether the Deadlock Stage[8] had been reached when RR terminated the Memorandum.  It is also useful to set them out at this stage so that witnesses’ reliability and credibility can be tested with reference to them.

25.  As have been mentioned above, the Development Agreement and the Commercial Management Agreement were dated 13 August 2001.

26.  By a board minutes dated 17 September 2004 (the “17/9/2004 Minutes”), RR authorized one Director of RR and Jeff Leung to do all necessary acts and things on behalf of RR and to sign all documents in relation to the sale of the whole or any part or parts of the Commercial Development and the Car Park Development.

27.  In January 2013, newspaper notices on invitations for tender for the sale of the Commercial Development were published.  On the Form of Tender, MTRC was named as the vendor, and GH its solicitors.

28.  On 30 August 2013, RR entered into a memorandum for the sale of the Commercial Development for HK$324 million (the “Cheung Memo”).  One Cheung Shun Yee, also known and referred to as “Logistic Cheung” was involved as the purchaser.  While not exactly the same, the format of the Cheung Memo are similar to those of the Memorandum.

29.  The Cheung Memo had subsequently been terminated.  The exact time when that was effected was in dispute.

30.  On 11 September 2013, Pierre Wong called Jeff Leung.  He made enquiry as to whether the Commercial Development was available for sale.  Jeff Leung answered in the affirmative. 

31.  On 12 September 2013 at 11:02am, Jeff Leung emailed Steven Li of MTRC. He provided to MTRC for its approval certain sales details on the Commercial Development.  The named purchasers were Li Woon Che and Tsoi Chi Chung (“Li & Tsoi”).  They were described as manufacturers in the Mainland.  It was said that “the property will be assigned to its 25 subsidiary companies for each shop”.  That mode of sale has been described by the parties as “strata‑titled sale”, which term I adopt.  A list of 25 companies was attached to the email (one for each of the 24 shops, and one for the signage).  The purchase price was HK$330 million.  That intended sale again did not materialize, in circumstances which are not agreed.

32.  At about 6pm on 12 September 2013, a meeting (the “12/9/2013 Meeting”) took place between representatives of the parties at the office of Chun Wo.  As will be seen, this is one of the 3 key meetings that is highly material to the disputes.  Amongst those who attended were Clement Mak and Ms Demeter Ma May Yien (“Demeter Ma”, the assistant to Clement Mak) of GF, Jeff Leung of RR/Chun Wo, and Pierre Wong, Mr Suky Yeung (“Suky Yeung”, Account Director Midland Realty (Shops) Ltd (“Midland Shops”)) and Kanas Chan of Midland Realty.  The purchase of the Properties was discussed.  What exactly took place during that meeting is in dispute.  What is however not is that towards the end of that meeting, the parties signed the Memorandum.

33.  On 18 September 2013, Alex Choi of Centaline Property Agency Limited (“Centaline”) emailed Jeff Leung.  The company search documents of High Peace were provided to Jeff Leung.

34.  On 18 September 2013, another meeting took place between GF and RR (the “18/9/2013 Meeting”).  This is the second of the 3 key meetings.  On behalf of GF, Clement Mak and Demeter Ma attended.  Jeff Leung and Christina Pang attended on behalf of RR.  Their attendance was authorized by a letter of RR dated 17 September 2013.  That meeting was prompted by RR having received an offer for the Commercial Development from another potential buyer.  The contents of the exact exchange are however in dispute.

35.  At that stage, GF was represented by Messrs Iu, Lai & Li (“ILL”). On 19 September 2013, ILL issued a letter to RR.  GF’s stances on a number of matters were stated.  It was stated, with reference to the 18/9/2013 Meeting, that RR’s intent and proposal to refuse to sell the Car Park Development Interest and request for a higher purchase price amounted to a blatant breach of the Memorandum.  GF requested RR to honour the Memorandum and requested provision of the draft formal sale and purchase agreement for the Car Park Development Interest and the Commercial Development within 14 days from the date of the Memorandum, else GF would take action to enforce GF’s rights under the same.

36.  On 23 September 2013, L&C wrote to GH and informed MTRC that it had instructions to act for High Peace in a prospective sale and purchase of the Commercial Development.

37.  On 24 September 2013, GH by email informed Jeff Leung (inter alia) of the letter from L&C and enquired with RR as to then status of the matter.  GH reminded RR not to enter into or sign any binding agreement or memorandum with any intended purchaser for the sale of the Commercial Development without MTRC’s prior written consent and approval.

38.  By email of 24 September 2013 at 7:47pm, Jeff Leung informed GH (copied to MTRC) that nothing had been signed with High Peace, “just a cashier order kept by us for consideration”.

39.  That cashier order (the “HP Cashier Order”) bears the date of 16 September 2013.  The receipt for the same is dated 27 September 2013[9]. It is not clear as to when RR actually received the HP Cashier Order.  But based on Jeff Leung’s email above, it would have been no later than 24 September 2013 at 7:47pm.

40.  On 25 September 2013, Jeff Leung and Sammy Cheung (inter alios) had a meeting with Deacons.  The relevant attendance note has been produced. The name of the client stated thereon is “Chun Wo”.  The contents of the attendance note suggests that RR had been engaging in parallel negotiations in respect of the sale of the Commercial Development: the proposed sale to High Peace was referred thereto as “3^rd transaction”[10]. Subsequent exchanges and correspondence between RR, Deacons and High Peace (as will be seen) indeed confirm that.

41.  On 27 September 2013, ILL wrote to Deacons and alleged that the time limit for execution of the formal agreement had expired, and that RR had committed a material breach of the Memorandum.  ILL had been instructed that unless a satisfactory reply was received by GF within 7 days, legal proceedings would be instituted against RR for breach of contract.

42.  In about early October 2013, there was a meeting between Anthony Poon, Jeff Leung and Pierre Wong.  This is not one of the 3 key meetings.  The meeting has little relevance to the overall picture.

43.  Under cover of its letter of 3 October 2013, RR sent to High Peace the draft sale and purchase agreement for the Commercial Development.

44.  On 4 October 2013, a written offer was sent from Centaline to RR and MTRC on behalf of their “substantial client” to purchase the Commercial Development at the price of HK$353,800,000.  While not expressly spelt out, that was meant to be the proposed purchase by High Peace. 

45.  Also on 4 October 2013, Deacons issued a letter to Haldanes (then also acting for GF) in which RR:

 (a)  denied that the parties had agreed on a timeframe to sign a formal sale and purchase agreement (“SPA”);

 (b)  sent (1) draft SPA for Commercial Development and (2) Provisional SPA for Car Park Development Interest, which were subject to vendor’s comment and approval;

 (c)  pointed out that parties were yet to agree on the allocation of purchase price as ILL could see from the drafts;

 (d)  gave GF 7 days to comment on the drafts.

46.  By letter of 10 October 2013, L&C informed RR that the contents of the draft SPA of the Commercial Development was in principle agreeable by High Peace.

47.  Also on 10 October 2013, ILL wrote to Deacons and stated that:

 (a)  ILL was instructed to review the draft SPAs provided by RR and Haldanes;

 (b)  it was unreasonable for RR to ask for comments on the drafts by 11 October 2013 when RR took 3 weeks to provide them;

 (c)  the vendor in the draft SPA for the Commercial Development was MTRC and not RR.  RR was asked to clarify the relationship between MTRC and RR in the sale and that ILL had to study and advise GF on the issue; and

 (d)  it was estimated that ILL would need at least 14 days to revert.

48.  On 11 October 2013, Deacons replied and stated that:

 (a)  it disagreed with ILL’s proposed timeframe of a further 14 days to review the draft agreements as time was of the essence;

 (b)  RR gave GF until noon on 15 October 2013 to confirm that GF agreed with all the terms of the 2 draft SPAs, and pointed out that in the event that GF did not agree on all their terms, RR was entitled to terminate the transactions, and reserved RR’s rights to do so; and

 (c)  GF was well aware that RR was an agent of MTRC.  Clause 22 of the Development Agreement made it clear that the sale of Commercial Development was subject to approval of MTRC.

49.  Also on 11 October 2013, ILL wrote to Deacons and:

 (a)  stated that many material and essential terms in the draft SPAs were outstanding and missing;

 (b)  disagreed with Deacons that “time is of essence” as there was no such reference in the Memorandum;

 (c)  stated that RR had no basis to require GF to confirm agreement to all the terms of the 2 draft SPAs by noon on 15 October 2013, and that GF would try its best to comment by 18 October 2013; and

 (d)  denied that GF was aware that RR was the agent of MTRC, as RR had never told GF about the situation or that the sale was subject to approval of MTRC.

50.  On 15 October 2013, Deacons wrote to ILL, that:

 (a)  RR allowed as a last extension for GF to confirm that it agreed to all the terms of the 2 draft SPAs by noon 18 October 2013; and

 (b)  reserved RR’s rights to terminate the transactions in the event that GF did not confirm by the stipulated deadline.

51.  On 16 October 2013, ILL wrote to Deacons and:

 (a)  stated that GF was prepared to execute the 2 SPAs once the blanks in and the incomplete schedules to the drafts had been duly completed.  It demanded that GF be provided with draft agreements with the blanks completed as soon as possible;

 (b)  asked RR to confirm that the 2 SPAs were the final versions approved by RR; and

 (c)  GF was unable to execute the 2 SPAs with the major and essential terms left out.

52.  On 16 October 2013, Jeff Leung emailed MTRC and:

 (a)  confirmed to MTRC that RR proposed to sell the Commercial Development to CCT, and that sub‑divided shop units would be sold to 25 subsidiary companies.  A company list with price breakdown (in the total amount of HK$324,000,000) and payment terms was attached;

 (b)  asked MTRC to instruct GH to prepare 25 SPAs to be signed by the purchasers on the same day on 22 October 2013 after MTRC’s approval; 

 (c)  stated that Chun Wo’s announcement of the transaction would be released upon MTRC’s signing of the SPAs; and

 (d)  asked MTRC to instruct GH to arrange inspection of title deeds by ILL.

53.  On 17 October 2013, Deacons wrote to ILL and;

 (a)  asked GF to confirm that it agreed that in the event that and for whatever reasons GF failed and/or refused to sign the SPAs, GF should pay RR liquidated damages of HK$39,999,000 of which HK$8 million would derive from the sums to be forfeited (out of the Earnest Money paid), and that the balance would be paid by GF within 7 days of such refusal / failure;

 (b)  enclosed the following documents:

 (i)  Breakdown of allocation of purchase price

 (ii)  Tenancy schedule for the individual shops

 (iii)  Plans for the individual shops.

54.  On 18 October 2013, ILL wrote to Deacons (the “ILL 18/10/2013 Letter”) and:

 (a)  said that there was no basis to agree to a forfeiture of 10% of the purchase price before the execution of SPAs, and GF was not obliged to comply with RR’s unilateral request;

 (b)  said that the allocation of purchase price was agreed at the time of signing of the Memorandum which was HK$345 million and HK$54.99 million while RR’s allocation was HK$324 million and HK$75.99 million.  It asked RR to revise the allocation according to the agreement between the parties;

 (c)  asked RR to provide the basis of allocation of purchase price to each individual Shop of the Commercial Development;

 (d)  asked RR to complete the blanks, eg clause 4(a) and 23(b) for GF’s consideration;

 (e)  said that GF was in the course of reviewing, and reserved the rights to make further comments; and

 (f)  said that approval of the draft agreements by the vendor (MTRC) should be obtained before presenting the same to GF for consideration.

55.  Deacons did not reply to the ILL 18/10/2013 Letter.

56.  On 21 October 2013, Deacons wrote to ILL and proposed that a without prejudice meeting (including legal representatives) be held to discuss the issues raised in ILL 18/10/2013 Letter.

57.  On 24 October 2013, ILL wrote and confirmed that representatives of GF would attend the without prejudice meeting proposed.  It further stated the understanding that “the meeting will be conducted on without prejudice basis and nothing discussed will be binding on the parties”.

58.  On 25 October 2013, the without prejudice meeting (the “WP Meeting”) took place.  This is the third of the 3 key meetings.  Deacons made an attendance note of that meeting (the “Deacons WP Meeting Attendance Note”).  It has been produced.  Despite that, the contents of the meeting are in dispute.

59.  According to the attendance note of Deacons of 28 October 2013, Anthony Poon told Deacons that RR could not accept a 1‑year completion period which was fundamental to the deal.  He asked Deacons to prepare a draft termination letter[11].

60.  On 28 October 2013, Jeff Leung emailed Deacons and attached a confirmation letter from L&C confirming that all the terms of the draft SPA of the Commercial Development were in principle agreeable by High Peace.

61.  Between 29 October 2013 and 4 November 2013, there were multiple correspondence between Deacons and RR in relation to the terms of the Memorandum of Understanding intended to be signed between High Peace and RR in relation to the sale and purchase of the Commercial Development (the “HP MOU”).

62.  On 30 October 2013, MTRC emailed GH and commented on certain clauses of the draft SPA, that:

 (a)  Clause 2 — payment method 10% of the purchase price shall be paid upon signing of the SPA, balance shall be paid upon completion;

 (b)  Clause 4(a) — completion date: 6 months after signing of the SPA; and

 (c)  Clause 23(b) — clarification was sought as to how long could completion date be postponed due to sub‑deed of mutual covenant approval.

63.  In the meantime, on 31 October 2013, Jeff Leung emailed MTRC at 11:26am and:

 (a)  informed MTRC that “we cannot reach final agreement with the Purchaser ([CCT]) to the terms and conditions, the proposed transaction has been terminated”;

 (b)  confirmed that RR proposed to sell the Commercial Development to High Peace.  He enclosed the terms of the proposed sale to MTRC for its approval;

 (c)  asked MTRC to instruct GH to revise the draft SPA.

64.  On 1 November 2013, ILL wrote to Deacons.  It referred to the WP Meeting on 25 October 2013 and stated that GF was still awaiting RR’s reply to GF’s proposal made in the meeting.  It demanded a reply within the next 3 working days.

65.  On 4 November 2013, RR wrote to MTRC and gave a written offer to MTRC to dispose of the Car Park Development Interest at HK$69,000,000.

66.  A Deacons attendance note of a telephone call with RR commencing 3:43pm on 4 November 2013 has been produced.  It contains inter alia the following records:

“ A: 3:51pm 3^rd Buyer is signing & will return later.

A: 3^rd B’s sol will register the MOU.

A:  - confirmed instructions to issue termination”

67.  It is not clear when High Peace signed the HP MOU.  But on 4 November 2013 at 4:36pm, Jeff Leung emailed Deacons and said “Enclosed please find the final MOU with 3 month extension added and signed by the 3^rd Purchaser for your perusal” (the “4/11/13@4:36 Email”).

68.  A Deacons attendance note of a telephone call with RR between 5:07pm and 5:16pm on 4 November 2013 has been produced.  The issue of the confirmation letter to GF was confirmed.

69.  On 4 November 2013 at 5:35pm, ILL received a letter from Deacons terminating the Memorandum (the “Termination Letter”).  The Earnest Money Cheque was returned.

H.     The Agreed Issues

70.  Parties have agreed that the issues that require adjudication are as follows:

 (a)  Whether the Memorandum executed by GF and RR on 12 September 2013 constituted a valid and enforceable agreement (“Issue #1”).

 (b)  If “yes” to (a) above, what was the true nature of that agreement and what were the express terms and implied terms (if any) of that agreement (“Issue #2”).

 (c)  Depending on this Court’s findings on (b) above, whether RR had acted in breach or wrongful repudiation of that agreement (“Issue #3”).

 (d)  If “yes” to (c) above, what is the quantum of damages to be awarded to GF against RR (“Issue #4”).

 (e)  If “yes” to (c) above, was the breach or wrongful repudiation by RR procured by Chun Wo (“Issue #5”).

 (f)  If “yes” to (e) above, what is the quantum of damages to be awarded to GF against Chun Wo (“Issue #6”).

 (g)  Had GF committed slander of title by reason of its publication of the letters dated 29 January 2014 from ILL to MTRC; the then directors of Chun Wo; and Deloitte Touche Tomatsu and the letters dated 19 February 2014 from ILL to Bank of China and Hang Seng Bank Limited (“Issue #7”).

 (h)  Had GF committed procurement of breach of contract by MTRC by reason of its publication of the letter dated 29 January 2014 from ILL to MTRC (“Issue #8”).

 (i)  If “yes” to (g) and/or (h) above, what is the quantum of damages to be awarded to RR (“Issue #9”).

 (j)  Did the publication of the letters mentioned in (g) and (h) above constitute defamation of and concerning Chun Wo (“Issue #10”).

 (k)  If “yes” to (j) above, did GF have a valid defence on the ground that the said publications were in legitimate protection and pursuance of its legal rights and interest (“Issue #11”).

 (l)  If “yes” to (j) above but “no” to (k) above, what is the quantum of damages to be awarded to Chun Wo (“Issue #12”).

I.     The witnesses

71.  For GF, the following witnesses have been called:

 (a)  As factual witnesses:

 (i)  Pierre Wong;

 (ii)  Clement Mak;

 (iii)  Suky Yeung; and

 (iv)  Demeter Ma.

 (b)  As expert on valuation:

Mr Ian Richard Carver Cullen (“IC”).

72.  For RR and Chun Wo:

 (a)  As factual witnesses:

 (i)  Jeff Leung;

 (ii)  Anthony Poon; and

 (iii)  Dominic Pang.

 (b)  As experts on valuation:

 (i)  Mr John Mitchell (“JM”) on the Car Park Development Interest; and

 (ii)  Mr Gareth Williams (“GW”) on the Commercial Development.

I.1.      THE APPROACH IN ASSESSING CREDIBILITY

73.  The approach for assessing credibility is not in dispute.  I have been cited a number of authorities, which include Hui Cheung Fai & Another v Daiwa Development Ltd & Others, unrep, HCA 1734/2009, 8 April 2014, §§77‑79 per DHCJ Eugene Fung SC and Hua Tyan Development Ltd v Zurich Insurance Co Ltd [2012] 4 HKLRD 827 §27 per Andrew Chung J, Hung Fung Enterprises Holdings Ltd and Other v The Agricultural Bank of China, unrep, HCA 16459/1998, 4 October 2010, §47 per To J.  I remind myself when considering a witness’ credibility the importance of considering the inherent likelihood or unlikelihood of the witness’ evidence, the consistency of the witness’ evidence with undisputed or indisputable evidence, with contemporaneous conduct and documents, and the internal consistency of the witness’ evidence.  I need to consider the totality of the evidence.  I warn myself against attaching undue weight on demeanour, though demeanour is obviously relevant when considering credibility.  I also bear in mind Re H (Minors) [1996] AC 563, which Mr Li has reminded me of, that the more serious the allegation sought to be proved is, the more cogent the evidence relied upon to support it must be.

I.2.      Adverse inferences

74.  Relying on Phipson on Evidence, 19^th ed §§11‑15, Cross & Tapper on Evidence, 12^th ed, pp 41‑42 and Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434 at §28, Mr Li[12] invites this Court to draw adverse inferences against GF for its failure to call certain witnesses.

75.  Mr Li’s submissions concern two groups of witnesses:

 (a)  those parties against whom the Writs of Subpoena were addressed, namely Joseph Chung of Deacons, David Law of L&C, High Peace and MTRC; and

 (b)  Kanas Chan, Leon Chui, Lieman Leung and Henry Leung.  The former 3 were from the Midland Group, whereas Henry Leung was the general counsel of CCT.

76.  In respect of the 1^st group:

 (a)  The first point to note is that the Writs of Subpoena concerned were all subpoenas duces tecum.  No leave had been sought (nor any obtained) for any subpoena ad testifcandum[13];

 (b)  Mr Li’s submission is that given the failure on the part of GF to call the recipients of the Writs, any ambiguities in the documents produced should be resolved against GF.  Mr Li points in particular to the Deacons WP Meeting Attendance Note;

 (c)  On the facts before me, I agree with Mr Pow that RR could not have been under any misconception that GF sought anything more than the production of the documents concerned.  The recipients of the Writs of Subpoena were not reasonably expected to be called[14];

 (d)  It is GF’s case that there were no ambiguities in respect of the Deacons WP Meeting Attendance Note, and that if RR claims that there are any (as Jeff Leung has), it is for RR to call Joseph Chung.  He was RR’s lawyer.  There is in any event no property in witnesses.  I agree;

 (e)  I see no basis for any adverse inference to be drawn in this regard.

77.  In respect of the 2^nd group:

 (a)  Witness statements for these four witnesses have been filed. Subsequently, they were not called;

 (b)  On day 6 of the trial, Mr Pow informed this Court and all parties that on time considerations, he decided to cut down on the number of factual witnesses;

 (c)  The intended evidence of Leon Chiu and Lieman Leung duplicated that of Pierre Wong;

 (d)  Mr Li submits that Kanas Chan and Henry Leung would be relevant on the issue as to whether Jeff Leung towards the end of the 12/9/2013 Meeting after Clement Mak had left gave Demeter Ma the first draft of the SPAs, how the same were handled by Henry Leung, which matters would in turn have a bearing on GF’s complaint that it did not know MTRC was the owner of the Commercial Development;

 (e)  As will be seen later, that incident has little relevance.  GF had soon acknowledged that MTRC was the vendor, and that its approval in respect of the Commercial Development was necessary[15];

 (f)  I decline to draw any adverse inference as invited by Mr Li.

78.  Mr Pow in turns invites me to, given RR and Chun Wo’s insufficient discovery, where appropriate draw adverse inference against RR/Chun Wo.

79.  I accept Mr Pow’s submissions that the discovery on the part of RR and Chun Wo had been insufficient.  I cannot understand why most of the documents obtained on the strength of the Writs of Subpoena were not discovered to start with.  But in the end, and on the facts of this case as explained below, I do not see any need to resort to any adverse inference which Mr Pow has invited me to make. 

I.3.      Assessment of credibility

80.  Mr Li submits that the fundamental issues are largely legal, and that there are contemporaneous documents available for resolving them.  He further submits that many of the factual squabbles are not material for the resolution of the real issues.

81.  To some degree, Mr Li’s submissions are correct.  However, as submitted by Mr Pow, the resolution of some of the factual disputes (some of which highlighted in section D above, and also for example the issue of procurement in so far as GF’s case against Chun Wo is concerned) remain necessary when it comes to determination of the issues.

82.  I consider the reliability and credibility of the witnesses in turn.

83.  Pierre Wong:

 (a)  Pierre Wong’s evidence is mostly consistent with contemporaneous documents.  I detect no inherent improbability or material inconsistency (internal or external) in his evidence;

 (b)  Neither Midland Group nor Pierre Wong is a party to these proceedings. They have no direct interest in the outcome of the same;

 (c)  Mr Li criticizes him for not being an impartial witness as Midland Group had a business relationship with Clement Mak and his companies.  I have taken that into account.  That by itself does not render Pierre Wong unreliable.  It is relevant to note that Midland Group also acted for Chun Wo in the sale of the residential units in the Development;

 (d)  The fact is that compared with Jeff Leung, Dominic Pang and Clement Mak, Pierre Wong is much more independent;

 (e)  Pierre Wong’s evidence is that he did not know that MTRC was the owner of the Commercial Development, and that no land search had been conducted before the 12/9/2013 Meeting.  Mr Li submits that that was not credible.  In those regards, Pierre Wong’s explanations were that he was not involved in the sale of residential units, and that he as estate agent was not required to contact MTRC, but would only contact or liaise with the developer.  He further explained that estate agents are not expected to conduct land search at the initial stage of the transaction.  I do not find his explanations to be incredible;

 (f)  Mr Li further submits if there had in fact been discussions during the 12/9/2013 Meeting on the allocation of the price, there could have been no intelligible answer for not setting it out in the Memorandum.  Pierre Wong explained that at that time, the most important thing to the purchaser and the owner was how much one party should pay and how much the other would collect. I do not find the answer incredible.  Further, his evidence is consistent with the contents of the letter issued by ILL shortly after the meeting to RR on 19 September 2013;

 (g)  I find Pierre Wong to be an honest and reliable witness.  I accept his evidence in so far as there is any difference between his evidence that that given by Jeff Leung (who I find to be an unreliable witness, as I will explain).

84.  Clement Mak:

 (a)  I find Clement Mak’s evidence to be largely consistent with contemporaneous documents.  In particular, his evidence on what were discussed during the 12/9/2013 Meeting is consistent with the contents of the letter issued by ILL shortly after the meeting to RR on 19 September 2013.  His evidence on the discussions during the WP Meeting was largely consistent with the Deacons WP Meeting Attendance Note;

 (b)  Clement Mak was intent on buying the Commercial Development and the Car Park Development Interest together.  Despite that, I find his evidence that there was discussion between the parties during the 12/9/2013 Meeting on the allocation of price inherently probable.  The price allocation was relevant as to how that total price of HK$399,990,000 was arrived at.  His evidence in that regard in my view makes good commercial sense;

 (c)  I see no material internal or external inconsistencies in his evidence;

 (d)  Mr Li criticizes Clement Mak’s evidence in a number of regards.  I have considered them.  I do not find them materially affect his credibility.  I can see why Clement Mak regarded an early project GF had undertaken (at City Garden, the “City Garden Project”) a success.  I do not find his evidence in this regard exaggerative.  The memorandum that he said GF had signed with a Mainland Party in respect of the development of the Properties had been pleaded and disclosed.  Its authenticity has not been challenged.  His understanding that there was consensus between the parties upon signing of the Memorandum that it should be “must buy and must sell” could be consistent with what he as a businessman understood and believed the position to have been, even though that might not be a legalistic one.  Certain bluffs he might have made during the WP Meeting was consistent with they being negotiation tactics, and do not in my view adversely affect his credibility;

 (e)  I find Clement Mak to be an honest and reliable witness.

85.  Suky Yeung and Demeter Ma:

 (a)  I see no material internal or external inconsistencies in their evidence.  I see no material inherent improbabilities;

 (b)  I have considered Mr Li’s criticisms of their credibility and reliability, which include their failure to conduct land searches before the 12/9/2013 Meeting, Suky Yeung’s evidence that he did not know that the Development was a MTRC project, Demeter Ma’s working relationship with Clement Mak, she not being about to recall certain matters, etc.  I have taken them into account.  I do not find them to be of sufficient materiality to adversely affect their credibility;

 (c)  I find them to be honest and reliable witnesses.

86.  Jeff Leung:

 (a)  Mr Li and Mr Chua submits that Jeff Leung is a credible witness, and that his evidence is consistent with contemporaneous records and conduct;

 (b)  I do not accept those submissions.  In making those submissions, Mr Li and Mr Chua have with respect undertaken no analysis of the evidence;

 (c)  Mr Pow submits that Jeff Leung is neither a credible nor reliable witness.  He has cited eight examples.  I have considered them.  Those examples support Mr Pow’s submissions.  I find that the following matters are of particular relevance;

 (d)  On the exact time when RR received the HP MOU:

 (i)  Jeff Leung’s evidence in this regard changed in accordance with the state of discovery.  It is an important issue.  It goes to show whether RR had entered into an agreement to sell the Commercial Development before RR terminated the Memorandum with GF;

 (ii)  Jeff Leung was aware of the importance of the timing of High Peace’s execution of the HP MOU.  That consideration according to him in fact influenced his contemporaneous conduct.  In his 2^nd Supplemental Witness Statement, he states that:

“ 14. … I provided a hard copy of the draft High Peace Memorandum to High Peace via Alex Choi for High Peace’s review and comments. Alex Choi subsequently told me that High Peace had no comments on the draft High Peace Memorandum and had in fact signed the High Peace Memorandum. At the time, I told Alex Choi to hold onto the High Peace Memorandum. Whilst I did not tell him the reasons for this, the reason for my decision to request Alex Choi to hold onto the High Peace Memorandum was that Rich Resource had yet to formally terminate the Memorandum for the above reasons and hence did not wish to enter into the High Peace Memorandum in the interim.

   15.  Following the termination of the Memorandum at around 5.35pm on 4 November 2013, I called Alex Choi to deliver the High Peace Memorandum for Rich Resource to sign which it did around 6pm on 4 November 2013.”

 (iii)  Jeff Leung’s 2^nd Supplemental Witness Statement was filed on 13 June 2017, before the documents in answer to the Writs of Subpoena were produced;

 (iv)  Deacons subsequently in answer to the Writs of Subpoena produced (inter alia) the 4/11/13@4:36 Email.  It shows that Jeff Leung had by then received the HP MOU, well before the termination of the Memorandum;

 (v)  When cross‑examined on that, Jeff Leung claimed that there were grammatical issues with his 2^nd Supplemental Witness Statement, that it should have been written wrongly there, and that there were some mistakes made in relation to the time;

 (vi)  I do not accept those explanations.  There are no grammatical issues. Jeff Leung has made a positive assertion with reasons that he had told Alex Choi to hold on to the HP MOU, and that RR only received it after termination. RR failed to disclose the 4/11/13@4:36 Email.  It turns out that Jeff Leung’s version of events on this important issue is contradicted by it;

 (e)  A similar example concerns the exact time when RR received the HP Cashier Order.  Jeff Leung’s original version was that RR only received it on 27 September 2013.  He was quite clearly trying to rely on the date of the receipt.  However, the email of 24 September 2013 at 7:47pm (mentioned above, which is amongst the emails produced by MTRC in answer to the Writs of Subpoena) shows that RR would have received it latest by 24 September 2013 at 7:47pm.  It was only during examination‑in‑chief when Jeff Leung volunteered to amend his evidence;

 (f)  Another email disclosed by MTRC shows that up to 8 October 2013, Jeff Leung was still chasing MTRC to grant approval to the draft SPA intended to be entered with GF.  That gave rise to serious concern as to the accuracy of one aspect of what he says at §38 of his witness statement.  He says therein that towards the end of the 12/9/2013 Meeting, after Clement Mak had left, he gave Demeter Ma a preliminary draft of the formal SPA for the Commercial Development and said to Demeter Ma “that in the case of the Preliminary Draft for the Commercial Development, the draft was a standard form containing terms which had already been approved by the MTRC”;

 (g)  In respect of the allocation of the purchase prices between the Commercial Development and the Car Park Development Interest:

 (i)  On instruction from RR, Deacons in its letter of 17 October 2013 allocated HK$324,000,000 to the Commercial Development and HK$75,990,000 to the Car Park Development Interest.  A table showing the breakdown of the allocation was attached to that letter;

 (ii)  Jeff Leung sought to explain the price of HK$75,990,000 allocated to the Car Park Development Interest with reference to certain valuations which he claimed he had orally sought from Savills.  When asked whether the valuation had been reduced into writing, he first pointed to a report of 12 November 2013.  But when pointed out to him that the valuation date for that report was 4 November 2013, he then claimed that the valuation results were conveyed to him over the phone and was not written out in black and white;

 (iii)  Further, when one studies the table of breakdown and compares it with the table in relation to the Li & Tsoi intended purchase, it becomes quite apparent that the former was prepared based on the latter, with the prices of 4 shops lowered so that the aggregate dropped from HK$330 million to HK$324 million. When asked about the reasons for the marking down, Jeff Leung claimed he could not remember the detailed or concrete reasons, and pointed to, in respect of one, certain declined in the business turnover of the occupant.  The marking down is also inconsistent with his evidence that the offer prices for the Commercial Development had over the period steadily increased.  I accept Mr Pow’s submission that Jeff Leung’s evidence that that table of breakdown was compiled with genuine valuation efforts is incredible;

 (h)  Jeff Leung’s evidence as to what were discussed during the WP Meeting is also materially inconsistent with the contents of the Deacons WP Meeting Attendance Note[16];

 (i)  For the above reasons, I find that Jeff Leung is not a reliable witness.

87.  Dominic Pang:

 (a)  Dominic Pang himself did not take part in the negotiations with GF.  He describes his involvement as fairly limited.  Matters were reported to him by Jeff Leung, and at a later stage Anthony Poon;

 (b)  He says in his witness statement that he has become aware, from Jeff Leung, that despite rounds of negotiations, RR and GF still had fundamental differences on the essential terms of the formal SPAs.  The differences were primarily to do with the price allocation between the Commercial Development and Car Park Development Interest, and the completion date;

 (c)  There are material inconsistencies between his evidence and other undisputed evidence.  Further, what he claimed Jeff Leung had reported to him was quite inconsistent with other evidence and the version given by Jeff Leung;

 (d)  To start with, he said that he and Jeff Leung would discuss the matter from time to time, either on telephone, SMS or face‑to‑face meetings;

 (e)  No SMS messages have been produced;

 (f)  Jeff Leung himself said that he seldom employed SMS when reporting to Dominic Pang;

 (g)  Dominic Pang claimed that he asked Christina Pang to participate in the 18/9/2013 Meeting because the negotiations were taking too long and no concrete conclusions had been reached.  He therefore looked around for senior members of the management team who might be able to assist RR to facilitate the negotiation.  To start with, the evidence suggests that at that stage, RR had not even instructed Deacons to handle the matter.  Further, according to Jeff Leung[17], the matter that was raised by Christina Pang and him during that meeting was that there was a potential buyer of the Commercial Development for HK$355 million, and they were seeking to explore the possibility of GF increasing the purchase price.  Dominic Pang on the other hand said that he would be surprised if that was indeed asked;

 (h)  Dominic Pang claimed that based on what Jeff Leung had told him, he had the impression, and had every reason to believe that Jeff Leung would have orally (not via solicitors) negotiated with GF, and would have orally conveyed RR’s expectation of the completion date to GF;

 (i)  Jeff Leung however confirmed that he had not contacted anyone from GF personally during each of the following periods:

 (i) 13 to 18 September 2013

 (ii) 18 September to 18 October 2013 (other than the 18/9/2013 Meeting);

 (iii) 18 to 24 October 2013; and

 (iv) 26 October to 4 November2013;

 (j)  According to the evidence, between 13 September and 24 October 2013, other than solicitors’ correspondence between 4 and 18 October 2013, there had been no other discussions between Jeff Leung and GF’s representative in relation to the intended sale and purchase;

 (k)  Dominic Pang says in his witness statement that after the WP Meeting, Anthony Poon reported to him that the parties were unable to reach any agreement on the major issues of   price allocation and completion date.  However, cross‑examination reveals that his recollection as to what was reported to him by Anthony Poon was not precise[18]. At the end of the WP Meeting, Anthony Poon said to Clement Mak that “我返去諗諗”.  Anthony Poon further said during cross‑examination that:

“Q. I suggest to you, to see whether you agree, at the end of the meeting, before the two sides parted, nobody had ever expressed that there is no point or no chance or no purpose of further negotiating or contacting each other.

  A.  The fact was that when the meeting was about to conclude or shortly before this, nobody on both sides had ever adopted this attitude or, yes, this posture.”

 (l)  As submitted by Mr Pow which I accept, either Dominic Pang was not truthful, or matters have been misreported to him.  Either case, Dominic Pang’s evidence is not reliable.

88.  Anthony Poon:

 (a)  Anthony Poon left Chun Wo in August 2018;

 (b)  Anthony Poon’s involvement was only in relation to the WP Meeting;

 (c)  He accepted that the Deacons WP Meeting Attendance Note was roughly correct.  His evidence is mostly consistent with the same;

 (d)  I find him to be an honest witness.

89.  For the reasons set out above, I do not accept the evidence of Jeff Leung and Dominic Pang insofar as it is inconsistent with the evidence given by Anthony Poon and the witnesses called by GF.

J.     Findings of material facts that are in dispute

90.  Having heard and considered the evidence, and on top of the facts sets out in the agreed chronology (and in particular those set out in Section G above), which I find, I make the following findings of facts.

91.  As I have recited above, on 30 August 2013, RR entered into the Cheung Memo.  The purchaser was Logistic Cheung.  The price was HK$324 million.  誠意金in the amount of HK$10,000,000 was paid.

92.  The Cheung Memo contained inter alia the term that:

「 …賣方會安排代表律師草議該份買賣合約，在草議合約期內業主不能再售予第三方 …」

93.  At some stage on or before 12 September 2013, RR/Chun Wo received an offer for the purchase of the Commercial Development from Li & Tsoi.  I have referred to Jeff Leung’s email to MTRC of 12 September 2013 notifying MTRC of that offer.  The price was HK$330 million, which was better than the offer made by Logistic Cheung.

94.  From that email, one sees that strata-titled sale was contemplated.

95.  I do not accept Jeff Leung’s evidence on cross‑examination that he orally terminated the Cheung Memo during a meeting he had with Logistic Cheung on 12 September 2013.  I find that he only did so on 13 September 2013.  That was what he told MTRC in an email of 24 September 2013[19]. RR only did so after it had secured the Memorandum with GF on 12 September 2013.

96.  I accept the evidence of Clement Mak and Pierre Wong as to what were discussed during the 12/9/2013 Meeting.  I have observed that their evidence in those regards are inherently more probable.  

97.  On the question of price allocation, I find that there was a discussion on the topic, and that there was a perception of consensus amongst the parties that HK$345 million of the total prince was allocated to the Commercial Development, and HK$54.99 million to the Car Park Development Interest.  They were each HK$5 million higher than the prior offers which Jeff Leung said RR had received.  The total originally arrived at was HK$400 million.  But to avoid the ominous figure of “4”, a sum of HK$10,000 was deducted therefrom. That the parties did believe that consensus over the price allocation had been reached also consistent with what subsequently transpired during the 18/9/2013 Meeting, which I will come to.

98.  I accept Pierre Wong’s evidence that during the negotiations, Jeff Leung sought instructions from Christina Pang over the phone on the price.  Pierre Wong overheard that when he followed Jeff Leung out of the meeting room.  He did so as he would like to hear the firsthand information and also to discuss with Jeff Leung the commission of Midland Group, who acted for both parties.

99.  On the question of completion date, I find also that there was discussion on that topic, and that there was also a perception of consensus on a completion period of 12 months.  I find it likely that given GF’s success in its earlier project at City Garden, it was cash‑rich.  Clement Mak wanted a quick completion date and suggested 3 months.  Rather, it was Jeff Leung who asked for HK$420 million and offered in return that Chun Wo could make arrangements for a strata‑titled sale.  Given the fact that RR/Chun Wo had already in the course of the intended sale to Li & Tsoi been contemplating a strata‑titled sale, I find that this version of events is inherently more probable than the version put forward by Jeff Leung, which was that it was Clement Mak who proposed strata‑titled sale.

100.  I have mentioned above ILL’s letter of 19 September 2013 wherein GF’s stances on a number of matters were stated.  Amongst them was GF’s stance on completion date.  It was stated that it had been “agreed that the formal Agreement for Sale and Purchase of the Property shall be executed by the parties within 14 days after the date of the Memorandum and completion shall take place within one year”.  I note that in Deacons’ letter of 4 October 2013 in reply, whilst it objected to ILL’s suggestion that the formal Agreement for Sale and Purchase should be signed within 14 days, no objection was made in respect of the suggested completion date.  I note in this regard also the attendance notes of the meeting on 25 September 2013 between Deacons and Chun Wo[20]. The letter from ILL was discussed.  It was recorded inter alia that “✓meeting no conclusion of 14 days”.  There was no record of any dispute in respect of the completion date. 

101.  In respect of the payment of earnest money, I note that both Logistic Cheung and High Peace paid earnest money.  The inherent probability is that RR requested that.  That also makes good commercial sense.  I accept the evidence of Pierre Wong and Clement Mak that it was Jeff Leung who requested the same from GF.  Clement Mak had originally scheduled to attend a project at Tuen Mun.  A cheque in the amount of HK$8,000,000 had been prepared for that purpose.  The payee had been left blank.  Ultimately he did not go, as he was more interested in the Properties.  He had that cheque with him during the 12/9/2013 Meeting.  Upon learning from Jeff Leung who the payee should be, Pierre Wong wrote on the cheque “Gallant Y.T. Ho & Co”.  It was then handed to Jeff Leung, who gave it to one of his female colleague to prepare the Memorandum.  

102.  In the end, the Memorandum was executed.  I will come back to its terms and effects when I consider the agreed issues.  I observe at this stage only this.  Jeff Leung and Dominic Pang should have no difficulty in understanding what a right of pre‑emption was.  That was not dissimilar to what MTRC had in respect of the Car Park Development Interest.  There was no suggestion from anyone during that meeting that the Memorandum was not legally binding.

103.  I accept Demeter Ma’s evidence that Kanas Chan gave her an envelope which she said was handed to her by Jeff Leung at the end of the 12/9/2013 Meeting.  Demeter Ma did not open it and gave it to Henry Leung.  In this regard, in the absence of any evidence to the contrary, I accept Jeff Leung’s evidence that the envelope contained the drafts attached as Appendix A to his witness statement.  I however do not accept that he said that “the draft was a standard form containing terms which had already been approved by the MTRC”.

104.  Despite the execution of the Memorandum, RR at some stage entered into negotiations with High Peace for the sale and purchase of the Commercial Development.  There is no dispute on this.  What is in dispute is when RR started the negotiations with High Peace.

105.  I note that the HP Cashier Order was dated 16 September 2013.  It was for a specific sum of HK$13.8 million.  It was made payable to GH.  I find it inherently improbable that High Peace would have secured a cashier order at a specific sum without any prior negotiation with RR.  As submitted by Mr Pow, which I agree, the sum of HK$13.8 million was unlikely to be coincidental, but was likely to have been derived from the offer price of HK$353.8 million, leaving a round‑figure balance of HK$340 million.  On balance, I draw the inference that RR had engaged in prior negotiation with High Peace which led to its issue of the cashier order.  I find also that RR had obtained an offer from High Peace before the 18/9/2013 Meeting, and that it was that offer which prompted that meeting.

106.  On 18 September 2013, the 18/9/2013 Meeting took place.  I accept Clement Mak’s account as to what transpired during that meeting.  Christina Pang said RR did not wish to sell the Car Park Development Interest because its yield was good and she wanted to keep it as a long‑term investment.  She said that another potential purchaser had made an offer to purchase the Commercial Development at HK$355 million so that it would not be sold to GF.  She asked whether GF could offer a higher price.  Clement Mak rejected the request.

107.  The 18/9/2013 Meeting in my view further supports GF’s case that parties had during the 12/9/2013 Meeting at least a perception of consensus on the price allocation.  Otherwise, Christina Pang and Jeff Leung would not have been able to tell whether GF’s offer was better or worse than the one said to have been made by that other potential purchaser.

108.  The following day, upon Clement Mak’s instruction, ILL issued its letter of 19 September 2013 (which I have mentioned above).

109.  On 25 September 2013, Jeff Leung, Sammy Cheung and Andy Mack had a meeting with Deacons.  I have mentioned the attendance note above.  I repeat the fact that on that attendance note, the client was stated to be Chun Wo.

110.  I have mentioned above that on 4 October 2013, Deacons provided GF with a draft SPA for the Commercial Development, and a draft Provisional SPA for the Car Park Development Interest.

111.  I have set out above the correspondence between parties’ legal representatives between 4 and 18 October 2013.  I repeat the evidence that apart from those correspondence, there had been during that period no other direct negotiations between the parties.

112.  On 25 October 2013, the WP Meeting took place.

113.  I place weight on the Deacons WP Meeting Attendance Note.  It was jotted by professionals.  Save some minor issues on attribution of speakers, Anthony Poon also accepts that the note was roughly correct.

114.  Clement Mak’s account of that meeting is mostly consistent with the contents of the Deacons WP Meeting Attendance Note, which I accept.  In so far as there is any inconsistency between his and Jeff Leung’s evidence in relation to the WP Meeting, I prefer Clement Mak’s evidence.  In particular, I accept Clement Mak’s evidence at §31 of his witness statement that he raised 2 further possible scenarios that (1) if MTRC accepted Chun Wo’s offer to sell the Car Park Development Interest at HK$75.99 million, GF should be given the option to purchase the Commercial Development only at the balance of the purchase price; and (2) Anthony Poon asked whether completion could take place within a shorter period, that Clement Mak expressed reluctance, that Anthony Poon suggested an alternative of further deposit of 30% because Chun Wo was in need of cash, that Clement Mak rejected the same, but indicated that he would be amenable to paying a total deposit of 20%.  Those discussions are supported by the Deacons WP Meeting Attendance Note.  Anthony Poon was recorded to have said “I need to take instructions if deviate from 6 + 6 mths for completion”.  I also accept Clement Mak’s evidence at §34 of his witness statement that:

“ … after the [WP Meeting], [GF] was expecting [RR] to provide its reply to the possible scenarios raised by me on [GF’s] behalf during the meeting, and at no point in time during the [WP Meeting] was [GF] led to believe that [RR] would not proceed with the transactions under the [Memorandum].”

115.  I find that at the end of the meeting, Anthony Poon said to Clement Mak to “我返去諗諗”.  I repeat also his evidence given during cross‑examination on the parties’ attitude, which I have reproduced above.

116.  According to Dominic Pang, either on 25 October 2013 after the WP Meeting or on 26^th, he received a report on the meeting from Anthony Poon. But as I have observed above, either Dominic Pang was not truthful, or matters have been misreported to him.  Either case, his account as to what was reported to him is not reliable.  In particular, I accept Mr Pow’s submission that Dominic Pang’s evidence that “Anthony Poon reported that there was zero chance of agreement” is also most doubtful, which I do not accept.  I do not accept Dominic Pang’s evidence that the decision to terminate the Memorandum was the result of they having reached the conclusion that there was zero chance of agreement.  That is inconsistent with Anthony Poon’s evidence discussed above.  That is also inconsistent with the evidence which I will analyze further when I come to consider Issue #2.  What is however apparent is that Dominic Pang, as he has said in his witness statement, then proceeded to decide on behalf of the board of RR that negotiations with GF should be brought to an end.

117.  I have set out above the material correspondence between 28 October and 4 November 2013 when ILL received the Termination Letter.  I note ILL’s request made on 1 November 2013 saying that GF was still awaiting RR’s reply to GF’s proposal made in the WP Meeting.  No reply was received from Deacons.

118.  I find that RR had received the HP MOU signed by High Peace latest by 4:36pm on 4 November 2013.

119.  I will now proceed to consider Issues #1 to #3 first.  I come back to Chun Wo’s role in the matters when I come to consider Issue #5.

K.       Issue #1

120.  The Issue is whether the Memorandum constituted a valid and enforceable agreement. 

121.  Mr Li’s main submissions may be summarized as follows:

 (a)  Read as a whole, the Memorandum was an agreement to negotiate.  It was an agreement whereby RR granted GF a right of pre‑emption to acquire the Properties, but that such right was subject to negotiation between the parties on the terms of the agreement, failing which no such right could be triggered;

 (b)  There was no consideration for the Memorandum.

122.  Mr Chua’s main submissions are similar:

 (a)  There was no complete and binding agreement of first or pre‑emptive right.  The Memorandum was void and unenforceable for uncertainty in failing to specify any specific period for such right, the completion date as an essential term in any contract for the sale of land, and the price allocation between the Commercial Development and the Car Park Development Interest;

 (b)     There was no deposit or part payment made, nor valuable consideration provided by GF.

K.1.      Alleged uncertainty

123.  When considering those submissions, it is important to highlight this point.  GF’s case is that RR had granted it a first or pre‑emptive right to purchase the Properties[21]. It is not its case that the Memorandum was or evidenced an agreement for the sale and purchase of the Properties.

124.  Recognizing the above leads to two points.

125.  Firstly, a pre‑emptive right confers no immediate interest in land.  Section 3(1) of the C&PO was not engaged — Pitt v P.H.H Asset Management Ltd [1994] 1 WLR 327, 334.

126.  It is not clear whether Chun Wo was still taking the point on want of formality.  Mr Chua appeared to accept that an agreement conferring pre‑emptive right is not caught by section 3(1) of the C&PO.  In his oral opening, he however submitted, on the oral evidence given by the witnesses, that GF was seeking to run an “unpleaded” case that the Memorandum was in fact an agreement for the sale and purchase of the Properties.

127.  There is no unpleaded case as suggested by Mr Chua.  Mr Pow has clarified and emphasized a number of times that GF’s case is based on pre‑emptive right.

128.  Even if Chun Wo was still seeking to take the point on want of formality, it is in my view not a point of any merits.

129.  The second point is this.  Essential terms need to have been agreed before an agreement has the requisite certainty to be enforceable.  But what those essential terms are that need to be agreed is dependent on what the agreement is.  For an agreement to sell and purchase of land, the price and the completion date will be amongst those essential terms.  For an agreement of pre‑emption, they are not.  The following authorities are relevant.

130.  Both Mr Li and Mr Chua relies on Walford v Miles [1992] 2 AC 128. 

131.  In Walford v Miles:

 (a)  The vendors agreed that upon receipt of a comfort letter from the purchasers’ bank, the vendors would terminate negotiation with any third party or consideration of any alternative with a view to concluding agreements with the purchasers[22];

 (b)  Lord Ackner observed that:

 (i)  the agreement as pleaded purported to be a “lock‑out” agreement, providing the purchasers with an exclusive opportunity to try and come to terms with the defendants, without expressly providing any duration for such an opportunity[23];

 (ii)  not only were the vendors “locked‑out” for some unspecified time from dealing with any third party, but were “locked‑in” to dealing with the purchasers for an unspecified period[24];

 (iii)  apart from the absence of any term as to the duration of the collateral agreement, it contained no provision for the vendors to determine the negotiations;

 (iv)  the concept of a duty to carry on negotiations in good faith does not work, and will not stop an agreement to negotiate from being uncertain and unenforceable, as the concept is inherently repugnant to the adversarial position of the parties when involved in negotiations[25] position;

 (v)  accordingly, a bare agreement to negotiate has no legal content[26].

132.  The nature of the purported agreement in Walford v Miles is in my view materially different from the Memorandum in the present case.  The Memorandum was not just a lock‑out agreement.  It is relied upon as an agreement of pre‑emptive right.  It expressly provided that “賣方同意給予買方優先購買權”.  It also contained a termination mechanism (that最終不能就正式買賣合約的條款達成一致協議，賣方有權取消本交易) — see JDS Corporation PTE Ltd v AI Waha Capital PJSC and another [2009] EWHC 3376 (Ch) at §46. 

133.  In AstraZeneca UK Ltd v Albemarle International Corp & Anor [2011] 2 CLC 252:

 (a)  the agreements between the party contained clause H.  Clause H provided that should the buyer reformulate one of its products to substitute propofol for a particular ingredient, “BUYER will so notify SELLER and will give SELLER the first opportunity and right of first refusal to supply propofol to BUYER under mutually acceptable terms and conditions”;

 (b)  It was argued that Clause H was unenforceable due to uncertainty of duration.  That argument was rejected.  Flaux J held that the right of first refusal would last for the duration of the agreement in which the right was contained[27];

 (c)  It was further argued that Clause H was uncertain as the precise terms of any supply contract would require to be agreed.  That argument was also rejected.  The fact that the precise terms of the contract would still be open for negotiation, once an offer was accepted or matched by the right holder pursuant to its right of first refusal, does not deprive the right of first refusal of contractual effect — Smith v Morgan [1971] 1 WLR 803 at §807[28];

 (d)  Flaux J found the submission that Clause H was too uncertain to have contractual effect unattractive.  Where parties have troubled to put a specific clause in their contract, then so far as possible the court should strive to give it some meaning commercially.

134.  I respectfully agree with the above views of Flaux J.  They are supported by authorities, and make good logical and commercial sense.

135.  I reject Mr Chua’s submissions that the Memorandum was unenforceable for uncertainty for failing to specify the period, the completion date, and the price allocation.  I reject also his related pleading point that GF has failed to plead that there was consensus in respect of those three matters.

136.  I also reject Mr Li’s submission that read as a whole, the Memorandum was an agreement to negotiate, and that the pre‑emptive right is one that is conditional upon the successful negotiation of the parties on the terms of the agreement:

 (a)  His submission in this regard is inconsistent with the plain wording of the Memorandum.  Therein, parties chose to use the term “優先購買權”.  Parties themselves regarded that a binding agreement existed, which might only be terminated if “雙方最終不能就正式買賣合約的條款達成一致協議”;

 (b)  I accept Mr Pow’s submission that that submission of Mr Li is circular.  If parties agree on the SPA, they will enter into the same.  Imposing a condition of successful negotiation of the agreement upon the existence or enforceability of the right under the Memorandum renders that right practically meaningless; 

 (c)  That is inconsistent with the views of Flaux J expressed in AstraZeneca[29];

 (d)  As explained in Barnsley’s Lan Options (6^th ed) §6003, and adopted by Deputy Judge Seagroatt in Siu Kai Ming v Lau Sai Hing, unrep, HCA 2131/2008, 4 June 2013, the triggering event for the crystallization of a right of pre‑emption is most commonly the formation on the part of the grantor of a desire to sell.  It is not the negotiation between the parties on the terms of the agreement;

 (e)  In rejecting Mr Li’s submissions on this point, I have considered the context and nature of the Memorandum as set out at §§15-17 of his Notes on Closing Submission;

 (f)  Mr Li refers to Re Speciality Shops [2003] 2 P &CR 31. That case concerned principally what forms of pre‑emptive right might upon the occurrence of the triggering event give rise to interest in land.  It does not assist Mr Li in deciding which events should be taken as the triggering event in the present case.

K.2.      Consideration

137.  I have found as a fact that it was Jeff Leung who requested the payment of the Earnest Money.  I accept also Clement Mak’s evidence[30] that he had specifically caused funds to be transferred into the relevant bank account to meet any presentment.

138.  I reject Mr Chua’s submission that no valuable consideration has been pleaded by GF.  At §6 of the Statement of Claim, it is pleaded that “In consideration of and pursuant to the terms of the [Memorandum]…”.

139.  Mr Li submits that the Earnest Money Cheque had never been cashed but was subsequently returned to GF.  But it was, as I have found, Jeff Leung who requested payment of the Earnest Money, and that GF had suffered detriment at least in having funds set aside for that cheque.

140.  In my view, the Memorandum was supported by valuable consideration.  The court will not look into its adequacy.

141.  I reject Mr Li and Mr Chua’s submissions to the contrary on this sub‑issue.

K.3.      Estoppel

142.  Given my findings and views above, GF’s alternative plea based on estoppel by convention is not engaged.

K.4.      Conclusion on Issue #1

143.  On Issue #1, I find that the Memorandum constituted a valid and enforceable agreement.

L.     Issue #2

144.  The issue is what the true nature of the agreement was, and what the express terms and implied terms (if any) of that agreement were.

L.1.      The nature of rights of pre‑emption

145.  While the law in relation to rights of pre‑emption has been described as being “bedeviled with complexity and uncertainty”[31], such rights are recognized as legally enforceable rights.

146.  The general nature of rights of pre‑emption is explained at §6‑002 of Barnsley, that:

“ Rights of pre‑emption are sometimes called ‘rights of first refusal’ — and vice versa. In practice, the terms are often used … interchangeably and without consideration as to the aptness of the expression employed. In both cases, the grantor — the owner of an interest in land — agrees that it will not dispose of its property without first offering it to the grantee. Insofar as there is a distinction, the expression ‘right of first refusal’ is commonly used where the grantee has the first right to refuse an offer to purchase at the price at which the grantor is willing to sell. On the other hand, the expression ‘right of pre‑emption’ is commonly used to describe the position where the grantee has the right to purchase at a fixed price (or at a price that is not chosen by the grantor) before the grantor is free to sell to anyone else. …”[32]

147.  At §6‑003 of Barnsley, it is further explained, in summary, that the grantor of the right is not compelled (without more) to sell to the grantee. The grantor’s rights of disposition of his property are however fettered in that the grantee becomes entitled to acquire the property before all others: he thus becomes a preferred purchaser.  The trigger for the crystallization of a right of pre‑emption most commonly comprises the formation on the part of the grantor of a desire to sell.  Accordingly, one feature that all rights of pre‑emption tend to have in common is that they provide for an initial period during which the landowner’s obligations are negative and the other party’s rights are, in a sense, inchoate but then they provide that, on an event occurring which triggers the rights of the other party, those rights assume a different context[33].

148.  In Woodroffe v Box (1948) [1954] ALR 474, cited by Flaux J at §25 of AstraZeneca, the High Court of Australia observed that the meaning of the phrase “first refusal” will always depend upon its context:

“ The truth is, indeed, that, in dealing with such a loose and colloquial expression, it may often be a mistake to cling strongly to a preconceived meaning. The safer and sounder course is to regard it as an expression of fairly flexible import, to look at the whole of what the parties to an instrument have said, and in the light of that whole to determine whether they have or have not conveyed an intention that an immediate offer is being made or is to be made.”

Similar observations were made by Deputy Judge Seagroatt at §32 of Siu Kai Ming.

L.2.      The express terms

149.  The express terms of the Memorandum have been pleaded by GF at §9 of the Statement of Claim.  I find them proved, ie:

 (a)  RR had granted GF and was obliged to provide GF with the first and/or pre‑emptive right to purchase the Properties at the total agreed price of HK$399,990,000;

 (b)  RR shall arrange its solicitors to provide a draft SPA, and in the meantime, both parties shall keep the transaction confidential; and

 (c)  RR shall only have the right to terminate the transaction if both parties eventually could not reach agreement on the terms of a formal SPA.

150.  I should here deal with a submission of Mr Chua.  He submits that in the absence of any express term on any specific duration in the Memorandum, the pre‑emptive right involved, at most, the making of an offer, which RR could withdraw at any time before acceptance.  In the course of his oral closing submissions, he referred to Bircham, per Chadwick LJ at §25.

151.  In Bircham, the Court did observe that the offer could be withdrawn at any time before acceptance, but that if the grantor did so,

“ it could not dispose of the property to a third party … without first renewing the offer (or making a further offer) to the [grantee]. But if [the grantor] no longer wished to dispose of the property, there was no reason why it should keep the offer open.” (§24)

152.  If Mr Chua is seeking to argue that RR could withdraw any offer it had made to GF before acceptance and then immediately became free to sell instead to High Peace, which he appears to be, I reject that submissions.

L.3.      The implied terms

153.  Mr Pow submits that the Memorandum contained the following implied terms (his emphasis) (the “Proposed Implied Terms”):^[34]

“ (1) RR shall exercise its best endeavours and act in good faith to perform its obligations (including observing GF’s pre‑emptive right to purchase at HK$399.99m) during the currency of the Agreement;

(2) RR will exercise its best endeavours to negotiate with GF in good faith on terms of a formal SPA;

(3) During the currency of the Agreement, RR will not negotiate with any third party with a view to depriving GF of its right of pre‑emption;

(4) During the currency of the Agreement, RR will not act in bad faith with a view to depriving GF of its right of pre‑emption.”

154.  In the course of his oral opening, upon this Court’s invitation for clarifications, Mr Pow accepted that the main thrust of those implied terms is that RR, having granted the right of pre‑emption, should not act in bad faith to deprive GF of that right.  The two elements of “good faith” and “best endeavours” are two facets of the same concept.  Similarly, “bad faith” and “deprivation of the pre‑emptive right” are also two facets of the same concept.  Mr Pow also accepted that in respect of the 3^rd Proposed Implied Term, mere negotiation with a third party was not prohibited, but only when such negotiations were conducted with a view to depriving GF of the right of pre‑emption.

L.3.a.     Whether factual basis for implication of terms pleaded

155.  Mr Li submits[35] that GF has not pleaded any implied term, but rather that it pleads that RR owed it implied contractual duties/obligations.

156.  I see no cause for objection there.  It is quite clear that it is GF’s case that those implied contractual duties/obligations arose from the Proposed Implied Terms.

157.  Then both Mr Li and Mr Chua complained that the material facts for the implication of those terms have not been pleaded.

158.  I have considered Answer 4 of GF’s Answer to Request for Further and Better Particulars of the Statement of Claim.  Therein, GF pleads that:

“ [GF] relies on the following facts and matters:

(1) the discussions that took place between the individuals at the meeting on 12^th September 2013 as pleaded in paragraphs 3 and 4 of the Statement of Claim which resulted in the execution of the Agreement;

(2) the express terms/contractual obligations of the Agreement as pleaded in paragraphs 5 and 9 of the Statement of Claim;

(3) the tendering and acceptance of the earnest money in the sum of HK$8,000,000.00 as pleaded in paragraph 6 of the Statement of claim;

and in light of those facts and matters, the said implied contractual duties/obligations were implied by law and/or in order to give business efficacy to the Agreement and/or to reflect the true intention of the parties and/or as an obvious inference from the express terms of the Agreement.”

159.  I am of the view the material facts have been sufficiently pleaded.

L.3.b.     Whether the terms should be implied

160.  The first point to note is this.  Mr Pow is not advocating that the law presumes or implies a general duty of good faith in every contract.  He accepts that the law does not.

161.  In certain types of contracts, eg employment contracts and joint venture contracts, English law implies a term of good faith — Chitty on Contracts §1-057.

162.  Mr Pow’s proposition is that given the nature of pre‑emptive right, a contract of pre‑emption has been recognized to be a special category of cases in which the duty of good faith is inherent.  He cites in support the following authorities.

163.  In AstraZeneca:

 (a)  Flaux J accepted that the grantor was obliged to act in good faith and to provide the grantee with full disclosure of the terms of any third party ‘deal’ which it was minded to accept.  The learned judge observed at §53 that “all that [the grantee] is relying upon are obligations which are inherent in or incidents of the right of first refusal”, and that “[t]hat seems to me to be an incident of the obligation on the grantor to act in good faith recognised …”;

 (b)  The observations by Flaux J at §§55 and 56 are also relevant, that:

“ 55 A further aspect of the obligation on the grantor to act in good faith concerns the effect of the closing words of clause H: ‘under mutually acceptable terms and conditions’. As already discussed, what those words recognise is that, even after the grantee has accepted the ‘contractual offer’ or, in the present case, matched the third party offer the grantor is minded to accept, it may still be the case that no binding contract is entered, because for example, there is some insuperable difficulty between the parties as regards the detailed specification of the propofol to be supplied. However, in my judgment what the grantor is not entitled to do is to act in bad faith in relation to such detailed negotiations, declining ultimately to enter a contract with the grantee and then enter into a contract on essentially the same terms with a third party.

56 Equally, because clause H does not impose a binding obligation on AZ to enter a contract for the supply of propofol, if during the detailed negotiations, in all good faith it decided not to enter such a contract at all because, for example, it decided to continue distilling DIP at Macclesfield and not source propofol direct after all, it could not be criticised. What it could not do is break off negotiations with Albemarle on the basis it did not want to enter a contract after all and then, weeks or months later, enter a propofol supply contract with Sochinaz or someone else after all.” (Emphasis added)

164.  In Smith v Morgan, a case also cited by Flaux J in AstraZeneca, the plaintiff conveyed to the defendant a dwelling‑house and certain land.  She covenanted that should she wish to sell the adjoining land after an initial period, she would give the defendant the first option of purchasing it at a price to be agreed upon, and any such offer to remain open for three months.  On a summons to determine the construction of the covenant, Brightman J held[36] that should the plaintiff wish to sell, she had an obligation to make an offer to the purchaser at the price and at no more than the price at which she was, as a matter of fact, willing to sell.  The learned judge further observed[37] that the plaintiff:

“ must, of course, act bona fide in defining the price to be included in the offer. It is a matter of fact.”

165.  In Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch 37, the defendant agreed that if the racecourse concerned should at any time be proposed to be used for dock purposes, it should give the plaintiff the first refusal thereof.  Having identified the two events in either of which the obligation to give a first refusal would arise, Vaughan Williams LJ observed at §§47-48 that:

“ … The agreement does not provide that the first refusal shall be given at any particular price or on any particular terms; nor that the price and other terms shall be ascertained by arbitration, or in any other way. Looking at these circumstances, we think there is at least fair ground for the contention that the clause only imports that the racecourse company shall, in either of the prescribed events, make a fair and reasonable offer to sell the lands to the canal company …; and we wish to consider the case from this point of view, which is the view most favourable to the defendants.

     [His Lordship then referred to the negotiations that took place between the racecourse company and the canal company commencing on August 10, the subsequent negotiations between the former company and the Trafford Park Company, the offer by the racecource company in the letter of October 20, 1899, to sell to the canal company for 350,000l., and its refusal, and the ultimate contract for sale to the Trafford Park Company for 280,000l.  His Lordship then proceeded:—]

     We think that the price of 350,000l. was one which the racecourse company did not really expect to get, and that the offer made by the letter of October 20, 1899, was not a fair and reasonable one …”

166.  Mr Li first submits that the Memorandum was not a “relational” agreement, in the sense that it was not a joint venture agreement, that there had been no previous course of dealings between the parties, that it was not a contract based on trust or confidence, and that there was no fiduciary relationship between GF and RR.  He relies on Sheikh Tahnoon Bin Saeed Bin Shakhboot at Nehavan v Kent [2018] EWHC 333 (Comm), per Legatt LJ at §167.

167.  However, it is not GF’s case that the Memorandum was a relational one. Nor is GF relying on that as any basis of implication of terms.

168.  Mr Li next submits that the legal position is that there is no general doctrine of good faith[38]. He relies on a large number of authorities, which include Walford v Miles 138A‑G, Charles Shaker v Vistajet Grow Holdins SA [2012] EWHC 1329 (Comm), per Mr Justice Teare at §7, Treitel, Law of Contract (14^th ed) §6-042, Chitty Vol 1 §§1-044, 1‑051, 1‑052 and 1‑058.

169.  However, Mr Pow is not arguing that a general doctrine of good faith exists.  His submission is that a good faith obligation is required for business efficacy in a contract of pre‑emption.  Absence of such an obligation would render the right of pre‑emption nugatory.  That would tantamount to allowing RR to derogate from its own grant.

170.  I see great force in those arguments.  In the absence of any duty of good faith along the lines proposed by Mr Pow, a grantor of a right of pre‑emption will be able to, if it receives subsequent to its grant a better deal, pretends to continue to negotiate with the grantee and ultimately make a sale at a higher price with a third party.  That will render a right of pre‑emption entirely meaningless.    

171.  Mr Li then submits (at §200 of his written closing) that “there is no express term on ‘best endeavour’ to negotiate.  The law is also … there is no such implied term and indeed even if there is an express term to use best or reasonable”:

 (a)  Mr Li cites §2-144 of Chitty in support;

 (b)  But that paragraph of Chitty concerns “Agreement to negotiate”. Mr Li is in effect reverting to his arguments made on Issue #1, which I have rejected;

 (c)  Mr Li then refers to Walford v Miles and the discussion on the same at §2-146 of Chitty.  That paragraph is however still under the topic of “Agreement to negotiate”.  And we have seen Walford v Miles. It concerned a lock‑in / lock‑out agreement;

 (d)  Mr Li next refers to Hyundai Ensineerins & Construction Ltd v Vigour Ltd [2005] 3 HKLKD 723.  That case was about the enforceability of an agreement to negotiate and mediate.  Rogers VP considered Walford v Miles and observed that in the context of an agreement to negotiate, 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.  That case had nothing to do with right of pre‑emption;

 (e)  Dany Lions Ltd v Bristol Cars Ltd [2014] EWHC 817 (QB), another case Mr Li refers to under this heading, concerned an express term to use best endeavours to fulfil the condition precedent, and again has nothing to do with contract of pre‑emption;

 (f)  I accept Mr Pow’s submissions that a proper reading of the authorities shows that there is a distinction between a lock‑in/lock‑out agreement and a contract of pre‑emption.  In the former, as explained in Walford v Miles and Hyundai, a requirement of good faith or best endeavours is unworkable.  In the latter, the same would require the Court to only focus on the specific act of making an offer and the price in the offer.  As observed by Brightman J in Smith v Morgan, “It is a matter of fact”.  It is workable.

172.  Mr Li next deals with the 3^rd Proposed Implied Terms. He submits (§§204 to 206 of his written closing) that bearing in mind Mr Pow’s concession that mere negotiation with a third party was not prohibited, and “if RR is right that there is no express or implied term of good faith …it is impossible to understand why the intent of RR in carrying out those negotiation could be the basis of an implied term”.  Those submissions beg the question as to whether his earlier submissions are right.

173.  Mr Li at §§208 to 219 of his written closing refer to some more authorities, including notably the following:

 (a)  Secretary for Justice v Hong Kong and Yaumati Ferry Co Ltd & Another, unrep, HCA 15329/1999, 22 December 2006.  That was a case concerning a contention that the Indemnity Agreement therein was subject to an implied term that the Government would negotiate fairly, reasonably and in good faith in respect of the proposed pier development.  It again has little to do with contract of pre‑emption;

 (b)  The recent line of cases starting from Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB).  After extensive submissions on those cases, Mr Li submits at §219 that “[the] above UK cases, once again, reaffirm the position that after Yam Seng, the question of good faith is subject to particular case‑by‑case context.  There is no general mandatory requirement to read‑in good faith”.  That is however consistent with Mr Pow’s stance, that he is not advocating for any general obligation of good faith applicable to all contracts, but that a contract of pre‑emption has been recognized to be a special category of cases in which the duty of good faith is inherent from the nature of the right granted[39].

174.  Mr Li next seeks to distinguish on facts the authorities Mr Pow relies on, that AstraZenca was on the construction of a supply contract, and that both Smith v Morgan and Manchester Ship Canal Co were cases on right of first refusal.  In the course of his oral closing, he further submitted that those cases were more concerned with the so‑called first‑stage matter, namely how to discharge the contractual obligation of fulfilling the right of first refusal, ie one must make an offer first:

 (a)  Whilst the facts of those cases are different, I am satisfied that their underlying rationale support Mr Pow’s proposition.  The observations of Flaux J at §53 of AstraZeneca that “all that [the grantee] is relying upon are obligations which are inherent in or incidents of the right of first refusal” applies equally to GF;

 (b)  I have mentioned above that in practice, the terms right of pre‑emption and right of first refusal are sometimes used interchangeable.  I have also discussed their difference insofar as there is any.  I accept Mr Pow’s submissions that there is no empirical basis for submitting that an implied term of good faith is only necessary for a right of first refusal but not right of pre‑emption.

175.  On Issue #2, Mr Chua’s principal submissions are that a duty to negotiate in good faith is unstainable as a matter of law and policy, and that such a duty is repugnant to the adversarial position of parties when in negotiations.  He submits that even an obligation of good faith exists, that duty does not require the interests of one party to be subordinated to those of the other.  Those submissions have adequately been dealt with above.

176.  One of the cases Mr Chua relies upon is Knights Quest Pty Ltd & Anor v Daiwa Can Company & Anor (Supreme Court of Victoria — Court of Appeal) [2019] 366 ALR 557.  There was an express good faith clause in the agreement concerned.  At [83] and [84] of the judgment, the Full Court observed that:

“ [83] Ordinarily, a good faith clause in a contract encompasses the following obligations:

(a) to act honestly and with a fidelity to the bargain;

(b) not to act dishonestly and not to undermine the bargain entered or the substance of the contractual benefit bargained for; and

(c) to act reasonably and with fair dealing having regard to the interests of the parties which will, inevitably, at times conflict, and to the provisions, aims and purposes of the contract, objectively ascertained.

[84]  The good faith obligation calls for good faith, or fair dealing, between commercial parties dealing at arm’s length, by reference to the bargain and its terms, as assessed and interpreted in the light of that obligation.  The contractual and factual context is vital to understand what, in any case, is required to be done or not done to satisfy the obligation.  The obligation must be construed having regard to the terms of the contract and the circumstances in which it was entered into that were known to the parties.”

That approach is in fact consistent with Mr Pow’s submissions, that the Memorandum calls for good faith by reference to the bargain and its terms, and is inherent in the right of pre‑emption granted.

L.3.c.     Conclusion on the existence of the implied terms

177.  For all the reasons set out above, I accept Mr Pow’s submissions[40] that a good faith obligation is required for business efficacy in a contract of pre‑emption.  The Proposed Implied Terms are obviously necessary to give efficacy to the Memorandum which would otherwise be ineffective without them.  They are reasonable and equitable, and are clearly expressed.  They are not contrary to other terms.  I imply them into the Memorandum.  I will from now on call them the Implied Terms.

M.     Issue #3

178.  The issue is whether RR had acted in breach or wrongful repudiation of the Memorandum.

M.1.      Parties’ submissions

179.  GF’s pleaded case at §§31(i) and (ii) of its Statement of Claim is as follows:

“ (i) [RR] acted in wrongful repudiation of the [Memorandum] when:-

(a) it entered into the [HP MOU] even prior to a valid termination of the [Memorandum];

(b) it purported to terminate the [Memorandum] when it had no right to do so; and

(c) it acted in bad faith in the manners identified hereinabove.

(ii)  further and/or alternatively, [RR] acted in breach of the express and implied contractual obligations as pleaded in paragraphs 9 and 10 hereinabove.”

180.  Mr Pow’s main submissions may be summarized as follows:

 (a)  his primary case is that GF and RR had not, according to the terms of the Memorandum, “ultimately (最終) unable to agree on all the terms of the sale and purchase agreement”.  RR has therefore wrongly exercised its power to terminate the same, resulting in a renunciation.  For this primary case, GF does not need to rely on the Implied Terms;

 (b)  GF’s secondary case is that RR had breached its good faith obligations;

 (c)  RR has also breached the express term of confidentiality.

181.  Mr Li deals with each of the pleaded breaches in turn.  In summary, he submits:

 (a)  in respect of the 1^st pleaded breach, that there is nothing to suggest that RR signed the HP MOU before the termination of the Memorandum;

 (b)  in respect of the 2^nd pleaded breach, he went through the evidence in details, and submits that there had indeed been negotiations between RR and GF, and that the parties could not reach agreement.  RR became entitled under the express term of the Memorandum to terminate the same;

 (c)  in respect of the 3^rd and 4^th pleaded breaches, RR had carried out negotiations with GF with an intention to bringing about the proposed transaction, and there is nothing to suggest that RR had negotiated with a third party with a view to depriving GF of the right of pre‑emption;

 (d)  there is nothing which suggests that RR had divulged the Memorandum or the proposed transaction with GF to others.

182.  In summary, Mr Chua submits that:

 (a)  there was no breach of any express term.  The essence of a right of first refusal is giving the grantee an opportunity to match a third party’s offer which the grantor is minded to accept before the third party’s offer is accepted, and that RR had done that during the 18/9/2013 Meeting;

 (b)  RR had acted in good faith from the time it entered into the Memorandum to RR’s termination of the same.  He then went through the correspondence and the witnesses’ evidence in great details, both of which he submits support that conclusion;

 (c)  as eventually the parties could not reach agreement, RR became entitled to terminate the Memorandum.

M.2.      Discussions

M.2.a.     Whether HP MOU entered into before termination of the Memorandum

183.  I have discussed the evidence above, and have made the finding that RR had received the HP MOU signed by High Peace latest by 4:36pm on 4 November 2013.  That was before RR terminated the Memorandum.

184.  Whilst RR received the HP MOU before its termination of the Memorandum, there is no evidence to show that it also signed the HP MOU before its termination of the Memorandum. 

185.  Mr Pow’s submission is that it does not matter when RR signed the HP MOU.  It was drafted by Deacons and presented by RR to High Peace.  It was an offer from RR that became accepted by High Peace as soon as High Peace executed on the HP MOU. A binding agreement arose there and then.

186.  In reply, Mr Li submits that Mr Pow’s submission cannot be right “as [the HP MOU] was an agreement and not an assignment.  In an assignment, it suffices for the assignment of interest just for the assignor to sign”.  That alleged distinction however does not answer Mr Pow’s submissions based on offer and acceptance.

187.  I accept Mr Pow’s submissions on this sub-issue.  I rule that a legally binding agreement for the sale and purchase of the Commercial Development in the form of the HP MOU had been reached between RR and High Peace before RR terminated the Memorandum.  

M.2.b.     Whether renunciation

M.2.b.i     Meaning of “最終”

188.  There can be no dispute that the Memorandum contained the express term that “但若雙方最終不能就正式買賣合約的條款達成一致協議，賣方有權取消本交易”.

189.  The crux of the issue is whether that stage of “雙方最終不能就正式買賣合約的條款達成一致協議” had been reached.  I will for ease of reference call that stage the “Deadlock Stage”.

190.  Mr Li submits that that term gave RR an absolute right to terminate. It was not a discretionary power.  There was no scope for any implied good faith.  Even if it was a matter of discretion, it could be exercised if it was not wholly unreasonable, arbitrary or capricious.  He relies on quite a number of authorities to make good that point, which include Chitty, Vol 1 §§1‑059, 1-060, 1-061, 22-048, 22-049, Lomas v JFB Firth Rixson [2013] 1 BCLC 27 at §46, and Trietel, §§18-077, 18-078.

191.  There is with respect no need to go into those authorities.  On this sub‑issue, Mr Pow’s position is that viewed objectively, the Deadlock Stage had not been reached by the time RR terminated the Memorandum.  Mr Li also accepted that that is the main issue[41]. It was not about the manner in which RR exercised its right to terminate.

192.  As explained in Chitty Vol 1§22-048, the parties may expressly provide for an option to terminate the contract exercisable upon the occurrence of a specific event other than breach.  In principle, since the parties are free to incorporate whatever terms they wish for the termination of their agreement, no question arises at common law whether the provision is reasonable or whether it is reasonable for a party to enforce it.  On the other hand, if such power is exercised at a stage when it is not exercisable, that act itself constitutes a wrongful repudiation which the other party may accept — see Dalkia Utilities Services Plc v Celtech International Ltd [2006] 2 P & CR 9 §§145-151.

193.  Submissions have been made to me on the meaning of the Chinese term “最終”.  Mr Li has cited to be漢語大詞典edited by羅竹風and現代漢語詞典(第5版) which both say that “最終” means “最後”.  Submissions have also been made on the appropriate English interpretation of that word, and that whether it should be translated as “eventually” or “ultimately”.  Mr Li has referred me to The New Oxford Dictionary of English (Oxford University Press 1998), Collins Cobuild Advanced Learner’s Dictionary (9^th ed, 2018) and Cambridge Advanced Learner’s Dictionary (4^th ed, Cambridge University Press 2013), wherein “eventual” is variably explained as meaning:

“ occurring or existing at the end of or as a result of a process orperiod of time”

“ something happens or is the case at the end of a process or period of time”

“ happening or existing at a later time or at the end, especially after a lot of effort, problems”

194.  Whilst the terms “最終”, “最後”, “eventually” and “ultimately” are ordinary terms which I do not believe I need dictionaries to interpret them, their dictionary meanings support Mr Pow’s submissions that they all indicate the end of a process.  In the context of the present case, that process was a process of negotiation.  Mr Pow submits that given the nature of negotiations, it cannot be the case that whenever disagreement arises in the course, parties can be said to be “最終不能… 達成一致協議”.  Inherent in the meaning of “最終” and that clause is the exclusion of initial differences.  It is only when “最終不能… 達成一致協議” that RR became entitled to terminate the Memorandum.

195.  Mr Pow submits that whether the Deadlock Stage has been reached is an objective question of fact.  It is irrelevant that a party had subjectively formed the view that it would no longer negotiate, if this was not communicated to the other.  Neither would it matter if a party subjectively thought that the other side might not be agreeable to its terms.  Mr Pow submits that these are consistent with the objective theory under contract law.

196.  The occurrence of an event can be the agreed condition which triggers a party’s contractual right to terminate.  I have cited Chitty above.  As a matter of principle, and given freedom of contract, subject to certainty, I see no reason why that agreed condition cannot be a state of affairs.  Whether a state of affairs has been reached, no different in my view from whether an event has occurred, is a question of objective facts, to be decided on the evidence.

197.  The Deadlock Stage denotes a state of affairs.  Whether it had been reached when RR terminated the Memorandum is an objective fact to be decided on the evidence. In this regard, I accept Mr Pow’s submissions.

198.  Mr Pow submits further that in the course of the negotiation, RR and GF were both entitled to put forward their respective ultimate or non‑negotiable position. He submits that there must be some objective pointers before the court can conclude that the state of“最終” has arisen.  He submits that there must first be an intimation of one’s final unmovable position and an opportunity for the other party to consider whether to take it or leave it.  He submits that that is the proper meaning of “最終” in the process of negotiation for terms of a SPA.

199.  I do not accept Mr Pow’s submission in this regard.  I see good commercial sense for either RR or GF to deliver an ultimatum.  It would have allowed one’s final stance to be known.  It would also have allowed the other side to consider a concession, in case the uncompromising stance adopted up till then was only negotiation tactics.  But whilst that is so, it remains that whether a state of affairs has been reached is an objective fact.  It is to be ascertained from the evidence.  The absence of an ultimatum is one factor to be taken into account.  I see no basis to elevate it in effect to a condition precedent which has to be satisfied before RR could exercise its right to terminate.

200.  I apply the above when considering the evidence, which I now turn to.

M.2.b.ii  Whether the Deadlock Stage reached

201.  For the reasons set out below, I am not satisfied that the Deadlock Stage had objectively been reached by the time RR terminated the Memorandum.

202.  The drafts provided by Jeff Leung at the end of the 12/9/2013 Meeting were at best standard form drafts. 

203.  It was an express term of the Memorandum that RR shall arrange its solicitors to provide a draft SPA.  Deacons was not engaged until late September (probably 25 September) 2013.

204.  The 18/9/2013 Meeting took place.  No draft SPA was discussed or provided.  Instead, Christina Pang said RR did not wish to sell the Car Park Development Interest.  RR was further asked to offer a higher price for the Commercial Development.

205.  On 4 October 2013, Deacons provided GF with a draft SPA for the Commercial Development and a draft provisional SPA for the Car Park Development Interest.  Important terms like price and completion date were however left blank.

206.  Between 4 and 18 October 2013, correspondence between the parties’ solicitors ensued.  Mr Li and Mr Chua have combed through them in great detail in their written closing.  I have considered that.  I have set the material parts out above.  The focus for this issue is what they culminated to.  I note in this regard that ILL said in its letter of 16 October 2013 that GF was prepared to execute the two agreements once the blanks in and the incomplete schedules to the drafts had been duly completed.  It demanded that GF be provided with draft agreements with the blanks completed as soon as possible.  I highlight also the contents of the ILL 18/10/2013 Letter.  It was issued one day after Deacons’ letter of 17 October 2013 giving the breakdown of allocation of purchase price.  GF asked the price allocation to be revised, and asked RR to provide the basis of allocation of purchase price to each Shop.  It asked RR to complete the blanks, and said that “the draft Agreements should have been agreed and approved by the Vendor before presenting to our client for consideration”, and in context, “the Vendor” must mean MTRC[42]. Deacons did not reply to the ILL 18/10/2013 Letter. 

207.  The effects of the ILL 18/10/2013 Letter are to be assessed objectively.  But even Dominic Pang upon cross‑examination, upon being shown the same, accepted that that letter does not suggest impossibility of agreement ultimately being reached:

“ Q. I see. So it only indicates up to that stage there was no agreement reached, right? Agree?

A. That would be reasonable, yes.

Q. Do you take that as a suggestion that agreement cannot possibly be reached between the two of you?

A. No, that would be an unreasonable assumption.”

208.  The correspondence during that fortnight was the only meaningful negotiation of any kind between parties’ solicitors.  Between 13 September and 24 October 2013, there had been no other discussions between the representatives of RR and GF.

209.  Then the WP Meeting took place.

210.  The WP Meeting was initiated by Deacons as a without prejudice meeting.

211.  On 24 October 2013, ILL wrote and stated the understanding of the parties that “the meeting will be conducted on without prejudice basis and nothing discussed will be binding on the parties”.

212.  I accept Mr Pow’s submissions that nothing discussed during the WP Meeting should end up be binding.

213.  In any event, even the discussions during the WP Meeting do not suggest objectively any irreconcilable difference.  Suggestions were put forward.  Discussions were conducted.  Anthony Poon accepted during cross‑examination that nobody had adopted the attitude of there being no point or no chance or no purpose of further negotiation.  He said to Clement Mak towards the end that “我返去諗諗”.

214.  Despite that, there remained no answer to the ILL 18/10/2013 Letter.

215.  In the meantime, on 30 October 2013, MTRC emailed GH and commented on certain clauses of the draft SPA.  The comments were not conveyed to GF.

216.  On 1 November 2013, ILL wrote to Deacons.  It referred to the WP Meeting on 25 October 2013 and stated that GF was still awaiting RR’s reply to GF’s proposal made in the meeting.  There was no reply.

217.  I have considered the evidence in relation to how the state of affairs was reported to Dominic Pang and the views he formed.  However, those were not matters that on the evidence had been communicated to GF.

218.  The above was the objective state of affairs when on 4 November 2013 at 5:35pm, ILL received the Termination Letter from Deacons.

219.  The contents of the Termination Letter suggesting irreconcilable differences are not convincing. In relation to the allocation of purchase price, one day after Deacons’ letter of 17 October 2013, GF in the ILL 18/10/2013 Letter sought more information on the same.  In respect of the completion date, RR had never filled in the relevant blanks in the draft SPA, and never put forward its position formally in writing.  I am not insisting upon any ultimatum.  But the absence of any formal written manifestation in that regard is relevant.  In respect of the requisite approval of MTRC, it was a spent issue, as GF in the ILL 18/10/2013 Letter in fact asked for the version of the draft SPA that MTRC had approved.  I note that MTRC on 30 October 2013 came back with its comments on the drafts.  MTRC’s comments had never been conveyed to GF.  I accept Mr Pow’s submission in respect of the above matters.

220.  As I have observed above, whether an ultimatum had been delivered is not decisive.  It is one factor to be taken into account.  The Termination Letter could have been an ultimatum.  It was not.  It acted to terminate the Memorandum. Mr Li submits that there was no need for RR to serve any notice before exercising its right to terminate.  I tend to agree, but only if the Deadlock Stage had been reached.

221.  I conclude that at the time of the Termination Letter, viewed objectively, parties had not reached the Deadlock Stage.

M.2.b.iii     Bona fide termination?

222.  I next considered Mr Chua’s submissions, relying on Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 [H.L.] at 283A-B, D-E, 295H that:

“ It is settled law that a party who bona fide relies on an express contractual term to terminate a contract, and does not manifest an ulterior intention to abandon it, is not to be treated as repudiating even if he turns out to be mistaken on his rights.”[43]

“ … RR’s bona fide exercise of its express contractual right to terminate could not and did not constitute breach or wrongful repudiation, let alone acting in bad faith. As such, GF falls well short of establishing breach, and causation.”[44]

“ if the plaintiff had a subjective misunderstanding of the nature of the pre‑emption right as a purported right to buy at a fixed price to the exclusion of others, even if on better terms, if we are correct that that is mistaken, then there is no breach by Rich Resource nor causation.”[45]

223.  At this stage, I consider the submission on the basis that the Memorandum was not terminated in bad faith.  

224.  In my view, Woodar does not represent the general rule.  As summarized in Neil Andrews et al’s, Contractual Duties: Performance, Breach, Termination and Remedies (2^nd ed) §§6-082 to 6-083:

“ …prima facie party X’s good faith proposed serious non‑compliance with the contract will constitute a renunciation if X was not in fact justified under the contract in resiling in this way: Federal Commerce & Navigation Co v Molena Alpha Inc (‘The Nanfri’) (1979)[46].

… however, such good faith proposed serious non‑compliance will not justify the other party in terminating the contract if:

…

(iii)    X & Y are agreed that the matter must be legally tested (by a court, arbitrator, or perhaps by some other mechanism) and that, if the relevant point is held against him, X will abide by the contract: Woodar…”

225.  That Woodar was decided on its own facts is discussed and borne out by subsequent decisions: see Dalkia Utilities Services§§148‑149 and Gulf Agri Trade FZCO v Aston Agro Industrial AG [2009] 1 All ER (Comm) 991 §§36-44.  In particular, Aikens J in Gulf Agri:

 (a)  highlighted at §39 the special facts in Woodar, that:

“ Lord Wilberforce gave the leading speech of the majority. In his speech he noted three particular facts which he regarded as indicative of the intentions of Wimpey at the time that it sent the notice to Woodar. First, before Wimpey sent Woodar the notice there had been a meeting at which a representative of Woodar stated that if Wimpey attempted to rescind the contract (using the Condition), Woodar would take Wimpey to court and the judge would have to decide whether the contract could be rescinded. Secondly, at that same meeting, Wimpey’s representative said that the notice to be given was protective and Woodar’s representative accepted that the notice would not be regarded as a hostile act. Thirdly, after the proceedings had been started by Woodar, a representative of Woodar wrote two letters to Wimpey, stating, first, that Woodar must await the decision of the court on the issue of the validity of the notice and, secondly, that he assumed that Wimpey would do so also.”

 (b)  observed at §44 that Woodar and The Nanfri are not difficult to reconcile, and that the relevant test is an objective one, that:

“ It is sometimes suggested that the two House of Lords decisions in the Woodar case and [The Nanfri] are difficult to reconcile. With respect, I do not think that they are. Ultimately, both cases hold that it is necessary to ask the question: what, objectively, is the intention of the party who has done something which is said to be a repudiation of the contract? Is it (objectively) that party's intention to abandon or repudiate the contract or not? This is a question of fact, to be determined by the fact finding tribunal from all the relevant evidence available.”

226.  In my view, Woodar does not apply.

227.  In my view, RR’s intention viewed objectively was to terminate the Memorandum.  It did so before the Deadlock Stage had been reached.  The Commercial Development was (in fact had been) sold to High Peace.

228.  I reject Mr Chua’s submissions on this point.

M.2.b.iv     Conclusion on this sub-issue

229.  I conclude that RR by the Termination Letter terminated the Memorandum. It did so in purported reliance upon the express term of the Memorandum that “但若雙方最終不能就正式買賣合約的條款達成一致協議，賣方有權取消本交易”.  But the Deadlock Stage assessed objectively had not been reached.  RR had at that stage no contractual right to terminate the Memorandum.  Its termination was a wrongful repudiation of the Memorandum. 

230.  I find that GF’s primary case on Issue #3 has been made out.

M.2.c.     Whether breach of the Implied Terms

231.  I next consider GF’s secondary case on Issue #3 based on breach of the Implied Terms.

232.  I start off by repeating my findings that there was perception of consensus in the course of the 12/9/2013 Meeting in relation to price allocation and completion date.

233.  In that regard, I reject Mr Chua’s objection on the absence of pleadings.  I accept Mr Pow’s submissions in that regard[47].

234.  Despite the Memorandum, RR entered into negotiations with High Peace.  I have drawn the inference that RR had engaged in prior negotiation with High Peace which led to its issue of the cashier order.  I have also found that RR had obtained an offer from High Peace before the 18/9/2013 Meeting.

235.  Mr Pow has accepted that the Memorandum did not prohibit mere negotiation from third parties.  In my view, that must be right.  But RR had done more.

236.  Despite the express term of the Memorandum, RR did not instruct Deacons to draft the SPA until late September (probably 25 September) 2013.

237.  Dominic Pang claimed that he asked Christina Pang to participate in the 18/9/2013 Meeting because the negotiations were taking too long and no concrete conclusions had been reached.  The reality was that at that stage, RR had not even instructed Deacons to handle the matter.

238.  Then during the 18/9/2013 Meeting, RR sought to go back on the Memorandum and indicated reluctance to sell the Car Park Development Interest.  Christina Pang also requested Clement Mak in effect to beat the offer of HK$355 million which RR had received on the Commercial Development.

239.  I pause here to make one observation.  Mr Chua has at various stages made reference to the 18/9/2013 Meeting and submitted that an offer was made there to GF to meet the higher offer from a third party, so that RR had been acted bona fide or that there was no wrongful repudiation[48].

240.  I reject those submissions.  What was raised during the 18/9/2013 Meeting was inconsistent with the Memorandum at the very least in respect of the bundled sale of the Commercial Development and the Car Park Development Interest.

241.  Mr Chua submits[49] that “the duty of good faith does not require RR to subordinate its best interests to GF, to prevent RR from walking away from the negotiation table — especially when no agreement could be reached over 1.5 months after the Purported Agreement”.

242.  But in reality, the only meaningful negotiation took place during a fortnight between 4 and 18 October 2013.  During those negotiations, RR failed to make a concrete offer setting out the full terms which it was willing to accept.  The various matters raised by GF in the ILL 18/10/2013 Letter were not answered in writing.

243.  Whilst the WP Meeting was proposed and held, it was a without prejudice meeting, and parties were not bound by the discussions that took place.

244.  After the WP Meeting, MTRC came back with its comments on the draft SPA.  They were not conveyed to GF.

245.  On 1 November 2013, ILL wrote to Deacons and, with reference to the WP Meeting, stated that GF was still awaiting RR’s reply to GF’s proposals made in the meeting.  There was no reply.

246.  In the meantime, steps were taken with the view of entering into the HP MOU with High Peace.

247.  RR chose not to inform GF of details of High Peace’s offer — compared with §54 of Flaux J’s decision in AstraZeneca.

248.  RR chose not to deliver any ultimatum (stating its final position for example as it did in the Termination Letter).  Such conduct would have to be assessed in the light of the contractual term that RR could only exercise it contractual term to terminate when parties “最終不能… 達成一致協議”.  It would have been a reasonable step to take if RR had the bona fide intention to honour the Memorandum. Issuing one would inform parties as to whether the Deadlock Stage had been reached.  RR ought to know that it had not through open correspondence replied to the ILL 18/10/2013 Letter and ILL’s request for reply to GF’s proposals made during the WP Meeting.  The failure to issue any ultimatum on the facts of this case is inconsistent with RR’s bona fides in honouring the Memorandum.  

249.  Then, RR received the HP MOU before it issued the Termination Letter. 

250.  I have considered Dominic Pang’s evidence on this issue.  I have found that his evidence is unreliable.

251.  I have stated my observations that the contents of the Termination Letter suggesting irreconcilable differences are not convincing.

252.  In all the circumstances, I accept Mr Pow’s submissions that RR terminated the Memorandum in bad faith by staging an inability to come to terms on a formal SPA.  That was done with a view to obtaining a higher price for the sale of the Commercial Development without selling the Car Park Development Interest which it did not want to, and to deprive GF of the pre‑emptive right.

253.  For the reasons set out above, I rule that GF’s secondary case on Issue #3 has also been made out.

M.2.d.     Whether breach of the confidentiality provision

254.  Mr Pow submits that the confidentiality provision in the Memorandum was also breached since the HP MOU expressly referred to High Peace’s knowledge of “pending and threatened claims or litigation involving the [Commercial Development]” (Clause 7).

255.  Clause 7 of the HP MOU was however not clear as to what and whose pending and threatened claims it was referring to.  They could have been from other parties, eg Logistic Cheung.

256.  On the evidence, I am not satisfied that GF has established any breach by RR of the confidential provision in the Memorandum.

N.     Issue #5

257.  Issue #4 is on quantum.  I will come back to it after I have considered Issue #5.

258.  Issue #5 asks whether the breach or wrongful repudiation by RR was procured by Chun Wo.

N.1.      The tort of procuring breach of contract

259.  In Xiamen Xinjingdi Group v Eton Properties Ltd [2016] 2 HKLRD 1106, Yuen JA, having referred inter alia to OBG Ltd v Allen [2008] 1 AC 1, identified at §204.3 the elements of the tort of “inducing breach of contract” as follows:

“ (1) there is a contract between A and B;

(2) there is a third party C who has knowledge of that contract;

(3) C does an act which induces or persuades A to breach the contract;

(4) when C did that act, he did it with intent to cause A to breach the contract, the breach of that contract being an end in itself, or a means to an end, and not merely the foreseeable consequence of C’s act;

(5)   as a result, B suffered pecuniary loss.”

260.  Both Mr Pow and Mr Chua have referred to Thames Valley Housing Association Ltd v Elegant (Guernsey) Limited [2011] EWHC 1288 (Ch). In that case, Lewison J at §101 referred also to the speech of Lord Hoffmann in OBG.  He summarized the ingredients of the tort of procuring breach of contract as follows:

“ i) The defendant must actually know that he is inducing a breach of contract. It is not enough that he ought to have realised that (§ 39);

ii) Actual knowledge, ‘blind‑eye’ knowledge and recklessness are all sufficient states of mind (§ 41);

iii) The breach of contract must be either an end in itself or the means to an end. If it is merely a foreseeable consequence that is not enough (§ 43);

iv) It is not necessary that the defendant intended to cause damage to the claimant: an intention to cause a breach of contract (in the sense described above) is both necessary and sufficient (§ 8);

v) There must be an actual breach of contract; merely hindering performance of a contract is not enough (§ 44);

vi)  The defendant’s encouragement, threat, persuasion and so forth must have a sufficient causal connection with the breach by the contracting party (§ 36).”

261.  As I see it, the emphasis of the elements identified by Lewison J is more on the requisite mental ingredients of the tort (in particular (i) to (iv) thereof).  They may be understood together with the elements identified by Yuen JA in Xiamen Xinjingdi Group.

262.  When the two cases are read together, the elements of the tort of inducing or procuring breach of contract may be restated as follows:

 (a)  there is a contract between A and B (“Element #1”);

 (b)  there is a third party C who has knowledge of that contract (“Element #2”);

 (c)  C does an act which induces or persuades A to breach the contract (“Element #3”):

 (d)  when C does that act, C has to have the requisite mental state (“Element #4”), in the following sense:

 (i)  C must actually know that he is inducing a breach of contract.  It is not enough that he ought to have realized that;

 (ii)  Actual knowledge, “blind‑eye” knowledge and recklessness are all sufficient states of mind;

 (iii)  C does the act with intent to cause A to breach the contract, the breach of that contract being an end in itself, or a means to an end, and not merely the foreseeable consequence of C’s act;

 (iv)  It is not necessary that C intended to cause damage to B: an intention to cause a breach of contract (in the sense described above) is both necessary and sufficient;

 (e)  There must be an actual breach of contract; merely hindering performance of a contract is not enough (“Element #5”);

 (f)  C’s encouragement, threat, persuasion and so forth must have a sufficient causal connection with the breach by A (“Element #6”); and

 (g)  As a result, B suffered pecuniary loss (“Element #7”).

263.  When considering the tort of procuring breach of contract, the relationship between the procurer and the procured is material.  The procurer may be a total stranger, or may be an agent of the procured (eg a director). Mr Chua has brought my attention to Said v Butt [1920] 3 KB 497 wherein McCardie J drew and considered that distinction at p 506 that:

“ I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken. I abstain from expressing any opinion as to the law which may apply if a servant, acting as an entire stranger, or wholly outside the range of his powers, procures his master to wrongfully break a contract with a third person. Nothing that I have said to‑day is, I hope, inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant in one of such recognized heads of tortious wrong.”

264.  That distinction drawn by McCardie J, and the reservation he expressed in relation to a director acting outside his powers, was affirmed in MCA Records Inc v Charly Records Ltd [2003] 1 BCLC 93 at §§49‑52.  Therein, 4 propositions were formulated.  The first and second are of particular relevance here, that:

“ 49. First, a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company — that is to say, by voting at board meetings. That, I think, is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person. Nor, as it seems to me, will it be right to hold a controlling shareholder liable as a joint tortfeasor if he does no more than exercise his power of control through the constitutional organs of the company — for example by voting at general meetings and by exercising the powers to appoint directors….

50.  Secondly, there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control through the constitutional organs of the company and the circumstances are such that he would be so liable if he were not a director or controlling shareholder.  In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control.”

265.  MCA Records was applied by Lam J (as he then was) in Kabushiki Kaisha Yakult Honsha v Yakudo Group Holdings Ltd (No.4) [2004] 2 HKLRD 587, wherein His Lordship observed at §122 that:

“ … Chadwick LJ [in MCA Records] reviewed the authorities extensively and put forward four propositions at paras.49‑52 of his judgment at pp.116-117. On the one hand, his Lordship affirmed that a director would not be personally liable if he does no more than carrying out his constitutional role in the governance of the company. On the other hand, if a director participated or was involved in ways which go beyond the exercise of constitutional control, his Lordship held that he could be liable as a joint tortfeasor as in the case of other joint tortfeasors.”

266.  MCA Records was applied by the Court of Appeal in Xiamen Xinjingdi Groupat at §252 (per Yuen JA).  

267.  Mr Chua criticizes the direct applicability of MCA Records to the present case.  He submits that MCA Records was concerned with individual director and shareholder, whereas in the present case, Chun Wo is the corporate parent company of RR.  In that context, he highlights and relies heavily on the decision of the Singapore Court of Appeal in Bumi Armada Offshore Holdings Ltd & Anor v Tozzi Srl [2018] SGCA(I) 05:

 (a)  In Bumi, the Singapore International Commercial Court (“SICC”) found that the first appellant (“BAOHL”) had breached the right of first refusal that it had granted to the respondent (“Tozzi”) in respect of certain project.  BAOHL was a wholly owned subsidiary of the second appellant (“BAB”).  The trial court also found against BAB for having induced BAOHL’s breach of contract;

 (b)  In relation to BAB’s liability for inducing breach, Neuberger IJ recited the issues identified by SICC, that:

“ … Tozzi had to show that ‘BAB (a) acted with the requisite knowledge of the existence of the contract …; and (b) intended to interfere with Tozzi’s contractual rights, with such intention to be objectively ascertained’ ”;

 (c)  The learned judge set out at §40 the facts taken into account by SICC in finding against BAB, that:

“ In considering those questions, the SICC noted the undisputed fact that ‘BAOHL [did] not have any employees of its own’ as well as Mr Schiavo’s unchallenged evidence that ‘Tozzi only corresponded [and, we would add, only dealt with] BAB’s employees and executives’ … A little later, the SICC said that they considered that ‘the evidence does not support the inference that BAB’s employees were at all times corresponding only on behalf of BAOHL’ …, and then explained why. The SICC began by pointing out that there was no evidence that BAB’s employees ‘held formal appointments in BAOHL’. The SICC then said that the individuals with whom Mr Schiavo dealt ‘were known to [him] only as BAB’s executives’, a number of crucial documents ‘were circulated by BAB’s strategic procurement team’, the individuals who attended the meetings with Mr Schiavo in January and April 2015 did so ‘expressly in their capacity as BAB’s personnel’, and ‘[c]rucially, there is nothing to indicate that Mr van de Korput’s e‑mail dated 1 March 2015 conveying the decision to breach Tozzi’s right was sent on BAOHL’s behalf rather than in his capacity as BAB’s CEO’ …”

 (d)  Focusing upon the fact that BAB was BAOHL’s parent company Neuberger IJ observed at §41 that:

“ … in a case where it is contended that a parent company is liable for inducing a breach of contract by its subsidiary the court has to focus on two additional issues. Those issues are (i) whether those individuals were acting for the subsidiary and/or the parent, and, if they were acting for the parent, (ii) whether the circumstances are such that the parent can properly be held liable for inducing its subsidiary’s breach of contract.”

 (e)  At §42, Neuberger IJ warned against the danger of relying on cases concerning the position of directors (such as Said v Butt) in a case involving the parent company, the reason being that a director is an agent of the company whereas a shareholder is not.  The learned judge preferred to start from first principles, that:

“ 43. We start with the proposition that the fact that a company is wholly owned and entirely controlled by its parent company cannot, without more, mean that the parent had induced the subsidiary’s breach of contract ...

44. On the other hand, the mere fact that a company is the parent of a contract‑breaking company cannot mean that, whatever the circumstances, the parent cannot be liable for inducing the breach of contract in question. The question of principle which arises is: in what circumstances can a parent company properly be held liable for inducing a breach of contract by its subsidiary?

45. In our view, the owner of, or indeed any shareholder in, a company cannot be held to be liable for inducing a breach of contract by that company if the actions said to give rise to its liability merely involved the owner or shareholder pursuing in good faith its own interest in its capacity as the owner of, or shareholder in, that company. If the sole, or majority, shareholder in a company formed the view that the company would be better off (and his shares would therefore be worth more) if the company breached a contract, and summoned a shareholder’s meeting, or persuaded the directors, to give effect to that view, it would seem wrong that the injured party should be able to proceed against the shareholder for inducing or procuring the company’s breach of contract. Such a result is essentially dictated by the rationale behind the decision in Salomon, as, if it were otherwise, a shareholder would effectively have to choose between sacrificing his right of pursuing his self-interest bona fide as a shareholder or finding himself liable for the company’s breach of contract. Such an outcome could also lead to practical difficulties. (Emphasis added)

…

47. … In order to establish that a parent company is liable for inducing a breach of contract by its subsidiary, some factor over and above an actual act of inducement would be needed. In other words, the mere fact that a shareholder with a controlling interest acts in such a way as to induce a company to breach its contract as a matter of fact, is not enough to render the shareholder liable for inducing the breach of contract as a matter of law: something more is required. At least in the present case, we consider that what would be needed would be a finding that, in so acting, the parent company was pursuing an interest unrelated to (or, possibly, in addition to) its capacity as owner of the shares in the subsidiary. However, it would be unwise for us to suggest that this could be the only additional factor which would cut it: for instance, a finding of lack of good faith might suffice.

   48.   It follows from the above discussion that BAB could properly be made liable for BAOHL’s breach of Tozzi’s contract only if: (a) BAB had, as a matter of fact, induced BAOHL to breach the contract; and (b) in inducing the breach, BAB had acted in a way other than in good faith in pursuing its own interest as the owner of BAOHL.”

 (f)  Neuberger IJ then proceeded to consider the evidence.  Those considerations are relied upon by Mr Chua.  They included, as submitted by Mr Chua, the commercial realities of a corporate group, especially when a subsidiary has no or limited employees of its own:

“ 50. Turning to the question whether BAB factually induced BAOHL’s breach of contract, it is true that the individuals who decided to subcontract, and who subcontracted, the supply of the TI Packages to VME, without honouring Tozzi’s right of first refusal, were employees of BAB, because BAOHL had no employees. However, that cannot, in and of itself, mean that BAB, as a matter of fact, was responsible for BAOHL’s breach of contract. The fact that an individual is employed by the parent company does not prevent that individual from acting for a subsidiary rather than the parent company. When acting for the subsidiary, the simple fact that the individual was employed by the parent does not mean that the individual was also acting for the parent — let alone that he was only acting for the parent.

51. The decision not to give effect to Tozzi’s right of first refusal … must have been made by the individuals concerned as agents for BAOHL, as it was BAOHL which granted the right of first refusal to Tozzi …

52. In those circumstances, it seems to us that it would require cogent additional evidence to show that the individuals responsible for BAOHL’s failure to honour Tozzi’s right of first refusal were also acting for BAB — let alone that they were acting solely for BAB.

53. The reasoning which led the SICC to conclude that the individuals were acting for BAB in a way which rendered BAB liable to Tozzi in tort, is summarised at [40] above. That evidence has two components. The first amounts to no more than saying that the individuals acting for BAOHL were actually employed by its parent company. As just explained, that, of itself, takes matters no further, particularly in a case such as this where the contracting subsidiary company has no employees of its own, and necessarily has to act through individuals employed by its parent company. The fact that those individuals did not ‘[hold] formal appointments in BAOHL’ may make it a little easier to argue that they were also acting for BAB, their actual employers. However, in our judgment, it cannot, in and of itself, establish that they were also acting for BAB at a time when they were plainly acting for BAOHL.

54.  Further, we do not consider that the second component of the SICC’s reasoning is convincing, namely that those individuals ‘were known to Mr Schiavo only as BAB executives’.  It does not take matters any further …”

268.  In my view:

 (a)  Bumi is helpful in highlighting certain considerations with particular regard to the alleged procurer being the parent company;

 (b)  Those, however, are factual considerations;

 (c)  On the law, Bumi does not differ materially from MCA Records;

 (d)  In MCA Records, McCardie J regarded as important the identity of the company as a separate entity.  The learned judge observed as part of the first proposition that it is not right to hold a controlling shareholder liable as a joint tortfeasor if he does no more than exercise his power of control through the constitutional organs of the company;

 (e)  Along the same line, Neuberger IJ observed at §45 that if the sole or majority shareholder “summoned a shareholder’s meeting, or persuaded the directors” to give effect to its view that the company would be better off (and his shares would therefore be worth more) if the company breached a contract, it would seem wrong that the shareholder could be sued for inducing or procuring the company’s breach of contract.  In forming that view, he also considered the rationale behind Salomon v Salomon;

 (f)  The penultimate sentence at §45 of Bumi (in particular the parts underlined and italicized above) is in my view important.  The right which the sole or majority shareholder should not be forced to sacrifice is the “right of pursuing his self‑interest bona fide as a shareholder”.  It is in my view no different from saying that that right has to be pursued through the constitutional organs of the company.  In my view, the words “bona fide” in the phase “in a way other than in good faith in pursuing its own interest” should be understood in that light.

N.2.      Pleading points

269.  Mr Chua has taken a number of pleading points in relation to GF’s claim based on the tort of procuring breach:

 (a)  In respect of the elements of the tort, he submits that GF has failed to plead knowledge on Chun Wo’s part that it was inducing a breach of the Memorandum, that it intended to procure a breach, and such breach being an end in itself or the means to an end;

 (b)  I have considered the contents of GF’s Statement of Claim filed in HCA 371, and in particular §§6(1) to 6(10) thereof.  It is specifically pleaded that RR’s repudiation of the Memorandum and breaches of the same were procured by Chun Wo.  Chun Wo’s involvement has been pleaded.  §6(10) makes express reference to §30 of the Statement of Claim in HCA 2449, which pleads bad faith on the part of RR.  Chun Wo was aware that the issue of intention is engaged, and it denies the same at §15 of its original Defence, which denial has been maintained all the way through;

 (c)  I do not accept Mr Chua’s submission that those elements of the tort have not been adequately pleaded;

 (d)  He next submits that GF has failed to plead certain bases upon which Chun Wo is said to be liable for the tort.  In effect, he picks words from Mr Pow’s closing submissions (that RR was merely a rubber stamp, Christina Pang being the decision maker with respect to sale price at the 12/9/2013 and 18/9/2013 Meetings and was pulling the strings from behind, that Dominic Pang decided to terminate the Memorandum without going through the RR Board, etc) and submits that they have not been pleaded;

 (e)  I accept Mr Pow’s submissions that those are matters of evidence.

N.3.      The ingredients — an overall view

270.  I have concluded that there was a legally binding contract between GF and RR in the form of the Memorandum.  Element #1 has been proved.

271.  I do not believe that Element #2 is in serious dispute.  Christina Pang is an Executive Director of Chun Wo.  She was involved (at least) in the 18/9/2013 Meeting.  Dominic Pang was at various stages the Chairman, Executive Director, Co‑Chairman and Non‑executive Director of Chun Wo.  I will however come back to Element #2.

272.  It is Chun Wo’s own case that it was Dominic Pang who decided that “negotiations with [GF] should be brought to an end and the Memorandum be terminated”[50]. A number of other officers and employees of the Chun Wo Group (notably Christina Pang, Jeff Leung and Anthony Poon) were also involved in the process leading to the issue of the Termination Letter.  Chun Wo accepts that[51]. The crux of the dispute is whether they did so and were involved on behalf of RR, or whether they did so on behalf of Chun Wo.  In Mr Pow’s words, the issue is whether they had been on behalf of Chun Wo pulling the strings from behind.  This is the nature of the dispute in relation to Element #3.  I will come back to it.

273.  Whether the requisite mental elements exist as discussed above is also in dispute.  I again will come back to it.

274.  A related issue which Mr Chua has raised, based primarily on Bumi, and given the context of Chun Wo being indirect parent company of RR, is whether Chun Wo did what it had done in pursuit of “its bona fide interests as RR’s indirect owner”[52].

275.  I have found that RR had repudiated the Memorandum.  Element #5 has been established.

276.  Causation cannot be disputed.  In particular, there can be no dispute that the decision to terminate the Memorandum led to the breach.  Element #6 has been established.

277.  I will set out my views on loss and the assessment thereof below when I come to consider Issues #4 and #6.  Those relate to Element #7.

N.4.      Elements #2, #3 and #4

278.  I consider the 3 disputed Elements together.

279.  According to the Development Agreement, RR was the developer but Chun Wo was the guarantor.

280.  Upon completion of the Development, Chun Wo was the beneficial owner of the Commercial Development.

281.  Chun Wo is a listed company.  For RR, only 2 shares of nominal value of HK$1 each have been issued.

282.  Within the Chun Wo group of companies, RR was used as the project company for the Development.

283.  In its public announcement of 13 December 2013 announcing the sale of the Commercial Development to High Peace (the “13/12 Public Announcement”), Chun Wo described RR as its “indirect wholly‑owned subsidiary”.  Pleading by GF to that effect has been admitted by Chun Wo.

284.  Hence, in reality, a project company of Chun Wo entered into the Memorandum granting a pre‑emptive right relating to the Properties of which Chun Wo was the beneficial owner.  I repeat also my discussions on the facts above and the involvement of its officers and its personnel (“Chun Wo Group Personnel”). On such facts, a clear inference can be drawn that Chun Wo knew about the Memorandum at all material times.  I accept Mr Pow’s submissions in this regard[53].

285.  Element #2 in my view has been established. 

286.  The above matters are also relevant when considering Elements #3 and #4, which I now turn to.

287.  For the reasons set out below, I find that RR’s repudiation of the Memorandum was induced and procured by Chun Wo.

288.  There can be no dispute that Chun Wo Group Personnel were involved in the negotiation and subsequent performance and termination of the Memorandum. The issue is that when they performed those relevant acts, who they were acting on behalf of.

289.  It is Chun Wo’s case that RR had no employees.  Mr Chua, relying on the discussion in Bumi, submits that as the Memorandum concerned RR, when Chun Wo Group Personnel were dealing with matters concerning the Memorandum, the natural implication is that they were acting on RR’s behalf.  No cogent evidence has been adduced to show that they acted on behalf of Chun Wo. He further submits that the involvement of Chun Wo Group Personnel does not of itself mean that Chun Wo was responsible for or had procured any breach by RR. He relies further on a number of specific authorizations issued by RR, namely (1) the 17/9/2004 Minutes[54], (2) the authorization letter of 17 September 2013 issued by RR authorizing Christina Pang and Jeff Leung as its representatives to attend the 18/9/2013 Meeting[55], and the 2 authorization letters of 24 October 2013 issued by RR authorizing Jeff Leung, Sammy Cheung and Anthony Poon to attend the WP Meeting[56].

290.  However, there is more to the mere involvement of Chun Wo Group Personnel. 

291.  As has been discussed above, the entity with real economic interest in the sale of the Properties was Chun Wo.  RR itself recognized that.  In its letter of 3 October 2013, when sending over the draft SPA to High Peace, Jeff Leung said that the draft was for “reference and information only, in which the final versions are subject to MTRC and [Chun Wo’s] confirmation and approval”.  This is a relevant factor.

292.  According to the Meeting notes for the Executive Meeting of Chun Wo held on 1 August 2013 (chaired by Dominic Pang), it was the Executive Board of Chun Wo who set the minimum prices for the intended sale of the Commercial Development and Car Park Development Interest. 

293.  I note the board minutes and letters of authorization relied upon by Mr Chua. However, not all material acts were covered by them.  The following matters are of particular significance:

 (a)  During the 12/9/2013 Meeting, Jeff Leung sought instructions from Christina Pang on the price.  I have accepted Pierre Wong’s evidence in that regard.  Christina Pang held no position with RR, but was an Executive Director of Chun Wo;

 (b)  Anthony Poon’s involvement in the termination of the Memorandum (and in particular the instructions he gave Deacons on 28 October 2013).  He further signed the HP MOU as director of RR though he was not;

 (c)  Dominic Pang did not involve the Board of RR in deciding to terminate the Memorandum.  In this regard, Mr Chua submits[57] that “[w]hile GF wishes to nit‑pick on whether he could do so as a single director, the indisputable fact is that the termination has nothing to do with Asia Allied”.  I do not accept that it is nit‑picking.  Termination of the Memorandum was an important matter.  There is no reason why the constitutional organ of RR be by‑passed if Dominic Pang were acting in his capacity as a director of RR.  It should also be noted that according to his evidence, he had not seen the 17/9/2004 Minutes before.  He could not have had that Minutes in mind when deciding to terminate the Memorandum.  I further do not understand why it may be submitted by Mr Chua that “the indisputable fact is that the termination has nothing to do with Asia Allied” when Dominic Pang was also a director of Chun Wo, and that it was Chun Wo which beneficially owned the Properties.

294.  I deal with here the board resolution of RR said to have been passed on 30 October 2013[58](the “30/10/2013 Minutes”):

 (a)  It authorized Anthony Poon to “do all necessary acts and things on behalf of [RR] and to sign from time to time any documents in relation to the disposal of the whole or any part of [the Properties]”;

 (b)  It was however only discovered by RR in the course of the trial after Mr Pow had opened his case;

 (c)  No valid reason has been provided to explain its late discovery.  I do not accept Mr Chua’s submissions that “the late discovery might be attributable to the large volume of such documents involving all subsidiaries of Asia Allied”[59];

 (d)  I accept Mr Pow’s submissions[60] that the existence of the 30/10/2013 Minutes is at odd with the evidence.  I highlight in particular the following:

 (i)  Anthony Poon has not mentioned it in his witness statement, but says at §13 that “My involvement was only in relation to the [WP Meeting]”;

 (ii)  Dominic Pang has not mentioned it in his witness statement, but does mention the letter authorizing Anthony Poon to attend the WP Meeting;

 (iii)  During cross‑examination, Anthony Poon said that he had sighted that authorizing letter in relation to the WP Meeting.  After that meeting, he was only asked by Dominic Pang to follow up with the work;

 (e)  On the evidence, I am not satisfied that the authenticity of the 30/10/2013 Minutes has been proved.

295.  It is important to note also this.  RR is an indirect wholly‑owned subsidiary of Chun Wo.  That has been admitted.  However, beyond that, there is no evidence on the corporate relationship between Chun Wo and RR.  What is clear from public documents is that Chun Wo was at the material time not even a direct shareholder of RR.  The 2 issued shares of RR was issued to Talent Ascent Limited Development and To Kai Yin.  That being the case, Chun Wo did not appear to have the interest to call and participate in any general meeting of RR.  In any event, there is no evidence that any general meeting has been held.

296.  In various attendance notes[61], Deacons put Chun Wo down as the client.  That being the case, instructions were in fact given to Deacons by Chun Wo.  Mr Chua again criticized that GF was nit‑picking.  I do not accept that.  It is one factor that this court is entitled to take into account.

297.  In my view, Bumi does not assist Chun Wo:

 (a)  Chun Wo was not a shareholder of RR;

 (b)  It is not Chun Wo’s case that it, if I may borrow the words of Neuberger IL in Bumi, had “formed the view that the [RR] would be better off (and his shares would therefore be worth more) if [RR] breached a contract, and summoned a shareholder’s meeting, or persuaded the directors, to give effect to that view”;

 (c)  The constitutional organs of RR were not engaged.  There is no evidence of any shareholders’ meeting having been summoned, or that the shareholders of RR had persuaded the directors of RR to terminate the Memorandum.

298.  I accept Mr Pow’s submissions that the facts of the present case resemble those of Thames Valley, wherein Mr Macpherson there was held to have “pulled the strings from the shadows”.  In my view, and on the evidence, that was what Chun Wo did in the present case.  I accept Mr Pow’s submission[62] that the only plausible inference, supported by cogent primary facts, is that Christina Pang, Dominic Pang and the Chun Wo Group Personnel were acting for and on behalf of Chun Wo when taking part in the disposal of the Properties.

299.  Mr Chua has raised the issue as to whether Chun Wo did what it had done in pursuit of “its bona fide interests as RR’s indirect owner”.  I have considered Bumi in this regard.  I have observed that the right which the sole or majority shareholder should not be forced to sacrifice is the “right of pursuing his self‑interest bona fide as a shareholder”.  I have expressed my view that that is no different from saying that that right has to be pursued through the constitutional organs of the company.  Neuberger IJ was of the view that if a sole or majority shareholder had done that, it “would seem wrong” that the injured part can sue it for having procuring the breach. But that was not Chun Wo had done.  Chun Wo did not pursue its self‑interest through the constitutional organs of RR.  Bumi in my view again does not assist it.

300.  I turn to Element #4.

301.  I have explained above why I do not accept Dominic Pang’s evidence that the decision to terminate the Memorandum was the result of they having reached the conclusion that there was zero chance of agreement.  I have found that at the time when the Termination Letter was issued, the Deadlock Stage had not been reached.  I have also found that RR terminated the Memorandum in bad faith by staging an inability to come to terms on a formal SPA.  That was done with a view to obtaining a higher price for the sale of the Commercial Development without selling the Car Park Development Interest which it did not want to, and to deprive GF of the pre‑emptive right.  Those acts were, I have now found procured by Chun Wo.

302.  On those facts, I draw the inference that when deciding to procure RR to terminate the Memorandum, Chun Wo possessed the requisite mental state.  They knew that a breach of the Memorandum was being procured.  The breach was the means to the ends of accepting the higher offer from High Peace, and at the same time keeping the Car Park Development Interest.  I find that Element #4 has also been established.

N.5.      Conclusion on Issue #5

303.  I conclude that the breach or wrongful repudiation by RR of the Memorandum was procured by Chun Wo, and it is liable for that tort.   

O.     Issues #4 and #6

304.  I now deal with Issues #4 and #6 — which concern the assessment of the damages to be awarded to GF against RR and Chun Wo.  This, as all parties have informed this Court, is a highly complicated exercise which Mr Dawes[63] described as “quite a heavy meal in itself”.

O.1.      Whether agreed damages clause

305.  Mr Chua submits[64] that the Memorandum contained an agreed damages clause[65].  He submits that GF is only entitled to a return of the Earnest Money Cheque for HK$8,000,000 should RR exercise its right to terminate.  RR limited its liability by the agreed damages clause, and did not expressly or impliedly assume responsibility for substantial or any damages.

306.  In making his submission, Mr Chua relies on Bunge SA v Nidera BV[2015] 3 All ER 1082.  It is important to note that the relevant clause in that case applied “In default of fulfilment of contract by either party”.  He also relies onGolden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353 [H.L.] for the proposition that “a plaintiff may recover no damages or nominal damages only if its rights are rendered ‘valueless’.  For instance, upon a lawful termination”.

307.  I reject those submissions.  I accept Mr Pow’s submissions that the question is one of construction — whether that term was intended to apply even if a party had acted in default or in breach of the Memorandum (eg seeking to terminate the Memorandum when the Deadlock Stage had not been reached).  The answer is in my view clearly no.  GF’s right under the Memorandum was not valueless.

308.  I reject Mr Chua’s further submissions based on Golden Strait and some further authorities, that “RR did not voluntarily assume responsibility in law, for substantial or any damages, especially given its bona fide termination, and the agreed damages clause”[66].  I repeat that there was no agreed damages clause in the Memorandum.  I repeat further my discussions in Section M above (and in particular M.2.b.iii and M.2.c.).

O.2.     Three issues of principle

309.  As framed by Mr Dawes, there are 3 initial issues of principle which the Court needs to consider at the outset:

 (a)  whether the en‑bloc value or the aggregative value (on break‑up basis) of the Commercial Development should be adopted;

 (b)  the proper approach to assessing GF’s loss of chance; and

 (c)  the date of assessment.

O.2.a.     En‑bloc or break‑up basis

310.  This issue arises as the Commercial Development at the material time comprised 24 Shops and the Signage.  They may be considered en‑bloc. They may alternatively be considered individually first, and then to have their individual values added up.  Depending upon the approach to be adopted, the result will be different.

311.  The issue is one of remoteness.

312.  Losses that arise either in the usual course of things (the first limb) or, in so far as not within the first limb, are reasonably contemplated by the parties at time of contract (the second limb) are recoverable as being not too remote — Chitty on Contracts (33^rd ed) §§26‑120 to 26‑121.  This is not in dispute.

313.  On the following evidence, I am satisfied that loss arising from sale of the Commercial Development on a break‑up basis fall within both the first and second limbs:

 (a)  From Jeff Leung’s email to MTRC of 12 September 2013 notifying MTRC of the offer from Li & Tsoi, one sees that strata‑titled was contemplated;

 (b)  The Commercial Development was sold by High Peace on break‑up basis;

 (c)  The above suggest that a break‑up sale was the usual course of things — hence the first limb;

 (d)  I also accept Clement Mak’s evidence that he made known to Jeff Leung during the 12/9/2013 Meeting the he intended to subdivide and sell the Commercial Development in a manner similar to what he did with the City Garden Project[67] — hence the second limb.

O.2.b.     Loss of chance

314.  Loss of chance is an identifiable head of loss — Hong Jing Co Ltd v Zhuhai Kwok Yuen Investment Co Ltd [2013] 1 HKLRD 441 §§83‑84, per Cheung JA.

315.  As explained by Cheung JA in Hong Jing at §84, the question usually arises in two broad situations.  First, where the hypothetical consequence involves the hypothesis of the plaintiff’s act.  Second, when it involves that of a third party.

316.  What the plaintiff himself would have done had the breach not occurred can only be proved as a matter of inference to be determined from all the circumstances.  The plaintiff’s evidence, whilst important, may not be believed, especially when there is compelling evidence to the contrary.  Where the action required of the plaintiff is clearly for his benefit, the court will have little difficulty in concluding that he would have taken it — Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, at 1610E, per Stuart Smith LJ.  At 1610 G-H, the learn judge went on to explain that:

“ Although the question is a hypothetical one, it is well established that the plaintiff must prove on balance of probability that he would have taken action to obtain the benefit or avoid the risk. But again, if he does establish that, there is no discount because the balance is only just tipped in his favour.”

As described by Mr Dawes, which I accept, it is a question of causation.

317.  In so far as the second hypothetical consequence is concerned, as explained by Cheung JA in Hong Jing at §85:

“ Where the plaintiff claims that, in the absence of the breach of contract by the defendant, the third party would have acted in a particular way, so as to benefit the plaintiff, he need not prove that hypothetical act would have occurred on the balance of probabilities. Provided that the plaintiff can prove that in the absence of the breach there was a ‘real’ or ‘substantial’ (not a speculative) chance of the third party’s act, the Court must assess the chance of that act resulting (usually as a percentage) and then discount the claimant's damages for his loss by reference to that percentage (Chitty on Contracts, Vol.1, p.1621 para.26-044). Stuart‑Smith LJ observed in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, 1614 that:

‘the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one.  If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other.  I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be.’ ”

O.2.b.i     The hypothesis of GF’s act

318.  I consider the first hypothetical consequence first.

319.  I have considered the evidence.  The differences between the parties were not huge.  They concerned principally the payment terms, the completion date and the price allocation.  I have accepted Clement Mak’s evidence that there was at least perception of consensus in relation to the completion date and price allocation.  In any event, I accept Clement Mak’s evidence that GF was cash rich as a result of the success of the City Garden Project.  Payment terms and completion date should not have been the deal breakers.  Clement Mak was flexible with the completion date.  He saw great potential in the deal.  I accept also his evidence that GF had secured a co‑investor right away.  The co‑investor was prepared to value the project at HK$600 million and to provide half of that sum as its investment.  He said that GF had effectively secured a “sure‑win” project.  Against the matters, I accept his evidence upon cross‑examination that he would have compromised, that:

“ During the course of the transaction, on negotiation for transaction, of course we hoped that both parties would abide by what has been discussed between ourselves. But since — given the fact that this property, in my mind, was a very attractive one, to me, I thought that this property would certainly make great gains for the company. At the final stage, or eventually, the other party insisted on a shorter completion date or to have the completion date in a short period of time. I finally, on my last step, would accede to it.”

320.  On the evidence before me, I draw the inference and find on the balance of probabilities that the parties would have agreed on the terms of the SPA for the Properties.

O.2.b.ii     The hypothesis of MTRC’s act

321.  In so far as the Commercial Development was concerned, MTRC had no financial interest in the same.  On the evidence before me which I have considered, I am satisfied that MTRC would not have disapproved any agreement between GF and RR.  I make no discount under this head.

322.  The next question concerns Clause 8 of the Commercial Management Agreement.  RR could only sell its Car Park Development Interest to a third party after MTRC did not accept RR’s offer to sell the same.  The question is whether MTRC would have exercised that right of first refusal.

323.  Whether MTRC would have exercised that right of first refusal would have been dictated by the price of the offer.

324.  According to Clement Mak, during the 12/9/2013 Meeting, HK$54.99 million was allocated to the Car Park Development Interest.  In Deacons’ letter of 17 October 2013, HK$75.99 million was allocated to the same.

325.  On that evidence, the offer price to MTRC would have been between those 2 figures.

326.  There are before me various valuations of the Car Park Development Interest as at different dates.  They ranged between HK$43 million and HK$69 million.  MTRC’s own valuation was at HK$53.9 million on 30 June 2013 (which is quite close to HK$54.99 million).  The one of HK$69 million is of some significance.  The valuation was as at 4 November 2013.  It was stated by Savills in its valuation letter of 12 November 2013. 

327.  If the Car Park Development Interest were offered to MTRC at the price which Clement Mak says had been agreed upon, which is a price quite close to MTRC’s own valuation on 30 June 2013, MTRC could have accepted it.  But, as has been discussed above, GF would have been prepared to compromise.  The offer price to MTRC could have been higher.

328.  I note that HK$69 million was towards the higher end of the range between HK$54.99 million and HK$75.99 million.

329.  On the evidence before me, I give a 40% discount to reflect the possibility that MTRC would have exercised its right of first refusal.

O.2.c.      The date of assessment

330.  Valuations as at 3 dates have been obtained: date of breach (4 November 2013, (the “1^st Date”)), date of the Writ in HCA 2449 (16 December 2013, (the “2^nd Date”)), and a date closer to trial (20 November 2018, (the “3^rd Date”)).

331.  Mr Dawes urges this Court to adopt the 3^rd Date as the date of assessment.  Mr Li and Mr Chua submit that it should either be the 1^st Date, and if not, the 2^nd Date.

332.  From the authorities they have cited[68], one sees that parties accept that the general rule is that the date of breach is adopted as the date of assessment (though Mr Dawes calls it the starting point).  The real dispute is (1) whether there is any justification in the present case for a different date to be adopted, and (2) who bears the onus of establishing the justifications.

333.  I consider the onus of proof point first.

334.  Mr Dawes likens the issue to one of mitigation.  He relies on McGregor on Damages (20^th ed, 2018) §9-020 and Geest Plc v Lansiquot [2002] 1 WLR 3111 (PC) §16.  He submits that the onus is on the defendant alleging failure to mitigate to plead and prove it.

335.  The onus of proof on failure to mitigate is not controversial.  

336.  Mr Li submits that it is not a question of mitigation.  It is a question of adducing proper evidence to justify deviation from the general rule.  He relies on the Court of Appeal decision of Lo Yuk Sui v Fubon Bank [2019] HKCA 261.

337.  Lo Yuk Sui was a case on loss of a chance to acquire certain shares by exercising an option.  The following paragraphs of the judgement are relevant:

“ 58. The Judge assessed damages based on the date of breach (30 September 2004) at $51,719,000. He rejected the plaintiff’s claim for damages which were to be assessed as at 15 December 2006 at $125,094,000 …

…

61. In essence, Mr Jat’s submission is that there is no available market for the plaintiff to acquire the right. Hence the ‘market value’ method of assessing damages on the date of breach of contract should not be adopted. He further relied on Hooper v Oates [2014] Ch 287 and submitted that since the defendant had in effect argued that the plaintiff had not taken reasonable steps to mitigate his loss by going to the market to acquire the shares, the burden is on the defendant to plead this and adduce evidence on it.

62. We are unable to accept Mr Jat’s submission. The normal measure of damages has been summarised by McGregor on Damages 19^th Ed. paragraphs 4-002 and 4-004 :

‘ 4-002 Contracts are concerned with the mutual rendering of benefits. If one party makes default in performing his side of the contract, then the basic loss to the other party is the market value of the benefit of which he has been deprived through the breach. Put shortly, the claimant is entitled to compensation for the loss of his bargain. This is what may best be called the normal measure of damages in contract.

…

4-004 (i) Non-performance. Where the breach of contract consists in failure to transfer property, the basic loss is the market value of the property, always deducting the contract price if it has not already been paid to the person in breach.’

63. As rightly submitted by Mr Yu, since it is the plaintiff who asserts this normal measure of damages should not be adopted because of his actual loss, the burden must be on him to show that there was no available market on the date of breach for him to acquire this right. The plaintiff’s case before the Judge was that his ‘investment value’ method of assessment should be adopted. He did not rely, nor did he adduce evidence, on the lack of an available market. The plaintiff’s ‘investment value’ method of assessment was considered and properly rejected by the Judge. In the circumstances, the Judge was clearly entitled to adopt the ‘market value’ method of assessment. Further the experts for both parties had proceeded on the basis that there was an available market to acquire the right. Realistically although the loss is the call option, the underlying subject matter of this call option is the Paliburg shares. On this basis, the experts had no difficulty in working out the ‘market value’ of the right on the date of breach.

64.  The cross appeal is without merits and should in any event be dismissed.”

338.  I am bound by Lo Yuk Sui[69]. I in any event respectfully agree with the reasoning of the Court of Appeal.  It is not so much a question of the defendant seeking to establish failure to mitigate.  It is a question of the plaintiff seeking departure from the general rule being required to justify it.

339.  I rule on this point that the burden is on GF to justify the adoption of the 3^rd Date as the date of assessment.

340.  I next consider whether there are any justifications from the general rule, and whether GF has established them.

341.  While the general compensatory principle for assessment of damages in the case of a sale normally leads to assessment of damages as at the date of the breach, that is not an absolute rule.  If following it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances — Johnson v Agnew at 401A.  Radford, Hooper, Forster,and Suleman are illustrations of dates other than the breach (mostly the hearing dates) having been adopted as the date of assessment.

342.  Absence of a readily available market for the plaintiff to seek an alternative can provide the justification — see eg Radford at 1285F‑H.

343.  The above are consistent with Lo Yuk Sui.  It does not appear that counsel for the defendant in that case argued against the proposition that non‑availability of market could justify the departure.  The point taken was failure on the part of the plaintiff to discharge the burden of showing that there was none.  The Court of Appeal appears to have taken the same view.  The Court observed (at §63) that the plaintiff did not rely, and did not adduce evidence, on the lack of an available market.  The Court further observed that the experts for both parties had proceeded on the basis that there was an available market to acquire the underlying shares, and had no difficulty in working out the market value of the option right.

344.  Mr Dawes relies on the uniqueness of the Properties. 

345.  Here, the position of the Commercial Development and the Car Park Development Interest should be considered separately.

346.  In so far as the Commercial Development is concerned:

 (a)  When considering above the issue of en‑bloc against break‑up sale, I have considered the evidence and found that Clement Mak’s intention was to break up the Shops and sell them individually.  That was what he did in respect of the City Garden Project.  The likelihood is that he could have done that not long after any completion;

 (b)  That being the case, there may not be any basis to adopt the 3^rd Date (5 years after the breach) as the date of assessment.  I accept Mr Li’s submission in this regard.  Mr Dawes in the course of his oral submissions in effect also accepted the force of that argument[70];

 (c)  In the circumstances, I see no injustice in adopting the 2^nd Date as the date of assessment for the Commercial Development, and this is what I am going to do.

347.  In so far as the Car Park Development Interest is concerned:

 (a)  The Car Park Development is part of the Development above a MTR station. The location allows park and ride under the scheme offered by MTRC;

 (b)  On top of that, IC has also pointed out[71] some other unique features, like direct access from trunk road into Eastern Kowloon from Clearwater Bay and Sai Kung, and its own dedicated traffic lane and up‑ramp that leads off the highway, directly and only to the Car Park Development;

 (c)  JM upon cross‑examination also accepted that it was difficult to find anything similar, and that there was no comparable that was close to the Car Park Development;

 (d)  The evidence suggests that the Car Park Development Interest, unlike the Commercial Development, was intended to be purchased for long term investment purposes; 

 (e)  In the circumstance, and on the evidence, I find that GF has adduced sufficient evidence on the uniqueness of the Car Park Development Interest. There was no readily available market for any alternative;

 (f)  In all, in so far as the Car Park Development Interest is concerned, I hold that it will be unfair to adopt the 1^st Date or the 2^nd Date as the date of assessment.  I adopt the 3^rd Date for that purpose.

O.3.      The overall approach

348.  Mr Dawes invites this Court to adopt the following overall approach, which I do accept as being an appropriate one:

 (a)  First:

 (i)  Determine if the Commercial Development should be assessed on break‑up basis or as a single interest (ie en‑bloc value);

 (ii)  This, I have now done.  The break‑up basis is to be adopted;

 (b)  Second:

 (i)  Select the valuation date;

 (ii)  I have also done that;

 (iii)  In so far as the Commercial Development is concerned, it is going to be the 2^nd Date;

 (iv)  In respect of the Car Park Development Interest, it is going to the 3^rd Date;

 (c)  Third, choose the correct valuation for the Car Park Development Interest and the Commercial Development;

 (d)  Fourth, add up the 2 valuations, and deduct the agreed price of HK$399.99 million from it.  The difference in value is prima facie the damages to which GF is entitled.

 (e)  Fifth:

 (i)  consider, on the balance of probabilities, whether that RR would have entered into SPAs with GF in respect of the Properties;

 (ii)  I have answered the question in the affirmative;

 (f)  Sixth:

 (i)  consider, the respective chance that:

 (1)  MTRC would not have accepted the sale in respect of the Commercial Development; and

 (2)  MTRC would have exercised its right of first refusal with respect to the Car Park Development Interest;

 (3)  The difference in value should be discounted (on a broad‑brush approach) by a percentage accordingly which reflects either or both of those contingencies; 

 (4)  In respect of (1) above, I have concluded that MTRC would not have disapproved any agreement between GF and RR.  I make no discount under this head;

 (5)  In respect of (2) above, I have concluded that I will give a 40% discount to reflect the possibility that MTRC would have exercised its right of first refusal.

349.  I now focus upon the third step set out above.

O.4.      Valuation for the Commercial Development

350.  I deal with the Commercial Development first.

351.  Given my rulings on the 3 issues of principle above, I can narrow down their valuations to those made on a break‑up basis as at the  2^nd Date. That of IC is HK$507 million.  That of GW is HK$423.03 million.

352.  The difference between the valuations adduced by GF and RR are substantial.  They are principally the result of different methodologies adopted by the experts.

353.  IC used the comparative method when there had been sales.  GW adopted the investment approach.

354.  The investment approach adopted by GW has in my view been accurately summarized by Mr Li at §5 of Schedule 10 to his written closing submission (“RR Schedule 10”), as follows:

“ GW has used the ‘Term and Reversion Investment Valuation method’… In essence, this was done by:

(a) determining the ‘term value’ i.e. the capital value of the current lease term by:

(i) ascertaining the current rent of each of the shops in question;

(ii) applying a yield of 3.25% to the said rent for the term of the lease current at the valuation date;

(b) determining the ‘reversionary value’ i.e. the capital value of the reversionary term by:

(i) assessing the market rent at the valuation date;

(ii) apply the yield of 3.5% to the said market rent for the reversionary term (i.e. from expiry of the current lease to perpetuity).

(c)  The market value is the aggregate of the ‘term value’ and the ‘reversionary value’.”

355.  IC has considered the investment approach[72]. He says that it can be used.  He considers however the variables at §10.5.  He notes that all the Shops had been sold individually since the termination of the Memorandum.  They took place between January 2014 and November 2015.  He expresses the following views[73]:

“ 10.7. Given the complexity of deriving market values for each arcade shop purely by an investment approach, it is or particular assistance here that now nearly all the [Shops] have been sold after separate legal titles were newly created …

10.8. These actual sales of the [Shops], which occurred shortly after the [1^st and 2^nd Dates], under a breakup sale of the arcade, are seen as evidence of overriding relevance. Such sales already take account of all variable factors tabled in Para 10.5 above, as well as the tenancies that were subsisting in the arcade at the dates of valuation for all shops sold subject to tenancy. Indeed, the only variable from the actual sale rates achieved to market value at the [1^st and 2^nd Dates] are:

(a) time lag …

(b) any change in tenancy income or occupancy;

(c) any change in yield rates over the period, between valuation and sale, plus:

(d) confirmation the sales achieved were at full ‘market value’, not depressed or out of line with other sales.

10.9. Accordingly, with the large majority of the now 29 shops having been sold since [the 1^st and 2^nd Dates], these transactions prices are used for valuation …”  

356.  In short, IC adopted those sales of the actual Shops since the termination of the Memorandum, with adjustments principally on time, as the main basis for his comparative method.

357.  In contrast, GW did not take those actual sales into account.

358.  I find the reasons GW gave for not taking those actual sales into account not convincing:

 (a)  The first reason he gave, in gist, was that the market attitude during 2015 was different from 2013[74], and that it did not follow that those actual purchasers in 2015 would have been the same persons with the same expectations if they bought the units in November / December 2013;

 (b)  But upon cross‑examination, he in effect resorted to saying that in any particular time one gets variations in what people think, and it is not consistent on a day‑by‑day basis;

 (c)  But if he were correct there, the comparative method, which is “universally regarded as the best method of valuation”[75], could rarely be regarded as reliable;

 (d)  The second reason he gave in GW 1^st Report[76] had not, according to what he said upon cross‑examination, affected his decision in not taking into account the actual sales;

 (e)  The third reason he gave was this, that:

“ A further anomaly which makes the backtracking method unsafe is that when I ran the figures the yields shown up for each shop unit shows a large variation …”

 (f)  He then set out in a table those alleged variations.  They were between 2.04% and 5.06%;

 (g)  No calculations have been provided in GW 1^st Report as to how those variations were arrived at;

 (h)  At Annexure 10.1 of IC 1^st Report, IC works out with figures the yields of the Shops.  Their range was narrower, between 2.02% and 3.48%[77];

 (i)  GW was cross‑examined on this.  He was asked to clarify his calculations. Clarifications were not immediately forthcoming.  After a number of attempts by Mr Dawes, GW’s answer was this:

“ Q. Sorry, I must have been unclear. What I was asking you is, if I look at your table at 558, I see very different yield figures as compared to Mr Cullen’s yield figures at 246 onwards. Why is there such a big difference? Can you tell me? Because I can see Mr Cullen’s calculations and I can’t see yours.

A. I don’t know why there’s a difference, because I don’t know ...

Q. You don’t have your calculations here; you couldn’t tell me as well?

A. Well, no, I haven’t.”

359.  In this regard, I have considered Mr Li’s submissions at §§9 to 12 of RR Schedule 10 criticizing the comparison method.  Those submissions primarily reiterate GW’s evidence without dealing with the above problems.  Mr Li highlighted the fact that each of the Shops only had one transaction.  But they remained the transactions relating to the very Shops we are concerned with.  No good reasons have been shown why they could be ignored. 

360.  The 3.25% GW used with his investment approach for calculation the term value is also in my view unreliable:

 (a)  He referred to the figures in relation to 4 Link real estate investment trusts (“REIT”) Malls;

 (b)  He worked out the yield rate of 4%;

 (c)  Those figures concerned the sales of those malls as a whole;

 (d)  But yield rates of individuals shops are generally lower when compared with those of a mall sold as a whole;

 (e)  Upon cross‑examination, GW accepted that apples were not being compared with apples;

 (f)  Then at p 16 of GW 1^st Report[78], he gives some elaborate explanations as to how he adjusts the starting figure of 4% to the 3.25% yield rate he ultimately adopts;

 (g)  But upon cross‑examination, he said (with emphasis added):

“ Q. Now let’s look at another element of the problem. 0.75 per cent. That figure is totally arbitrary; would you accept that? There’s no backing for this figure?

A. It happens to be the figure, because I chose 3.25 per cent, and if you look at 3.25 per cent compared with the lowest of the Link REIT properties, it just happens to be 0.75. So it’s the other way around.

Q. So you mean you got the 3.25 per cent independently?

A. Yes.

Q. It just so happened to correlate with the 4 per cent?

A. Yes.

Q. Can we revisit your report, at page 562.

A. Yes.

Q. If you look at the bottom of the page.

A. Yes.

Q. I thought you worked that out the other way around.

A.  Well, I’ve written it there, but in reality it was coming at it from different approaches.”

361.  Further, the valuations reached by GW using his investment approach are inconsistent with some real life figures:

 (a)  The en‑bloc value of the Commercial Development he arrived at using his investment approach was more than HK$30 million lower than the price High Peace paid;

 (b)  His valuation on the Commercial Development on a break‑up basis at the 1^st and 2^nd Dates is, as said, HK$423 million, and HK$504 million as at the 3^rd Date;

 (c)  But the total actual sales of the Shops between January 2014 and November 2015 was HK$534 million;

 (d)  Upon consideration of the actual sale, and assuming accuracy of GW’s valuations, it means that that value of the Commercial Development went up substantially from the end of 2013 to end of 2015, but dropped back down from end of 2015 to late 2018.  That would be quite inconsistent with the trend one sees from the relevant Rating and Valuation Department index.

362.  I have considered Mr Li’s submissions at §§13 to 15 of RR Schedule 10 justifying the adoption by GW of that 3.25%.  Again, those submissions primarily reiterate GW’s evidence without dealing with the above problems, and in particular the manner in which how GW (as explained upon cross‑examination) picked the 0.75% and 3.25%.

363.  For all the reasons set out above, I have formed the view that the comparison method adopted by IC is on the facts of this case much more reliable compared with the investment approach adopted by GW.  I accept IC’s opinion in that regard.

364.  Mr Li submits that even if the comparison method used by IC is preferred, there are still some further problems with IC’s valuations.  He points out certain alleged inconsistent treatment by IC in relation to Shops 106B, M01 and M02 on the one hand, and Shop M05 on the other.  IC explained the calculations when giving evidence‑in‑chief.  The revisions to the valuation of Shop M05 concerned some very minor matters on the date of the SPA.  The revisions relating to the rest concerned information on their sales which he previously was not aware of, and that certain adjustments were necessary given the information that they were sold subject to tenancy.  These, and other matters that Mr Li raised at §§23 to 26 of the RR Schedule 10, in my view do not materially affect the valuations reached by IC.

365.  For the reasons set out above, I accept IC’s valuation of the Commercial Development on a break-up basis as at the 2^nd Date, namely HK$507 million.

O.5.     Valuation for the Car Park Development Interest

366.  IC’s valuation of the Car Park Development Interest as at the 3^rd Date is HK$101 million.  That of JM is HK$81.6 million.

367.  The difference is again down to the different methodologies adopted by the experts.

368.  The valuation of the Car Park Development Interest is an even more difficult and technical exercise.  It is not any car parking spaces which are to be valued.  It is 49% of the Joint Venture.

369.  The gist of the approach adopted by JM may be summarized as follows:

 (a)  In September 2015 (the “Transaction Date”), RR sold the Car Park Development Interest to MTRC (the “Transaction”) at HK$60 million (the “Transaction Price”);

 (b)  The Transaction was adopted as the basis of his valuation;

 (c)  Adjustments were made to the Transaction Price to reflect the time difference (backwards for the 1^st and 2^nd Dates, and forward for the 3^rd Date);

 (d)  He then adopted 2 other methods (by considering strata‑titled car parking transactions in the neighbourhood, and adopting what he called the dividend discount method) as reasonableness checks.  For different reasons (the strata‑titled sales showing substantial variations, and the dividend discount method being too subjective), those 2 other methods were not adopted.

370.  The core of the dispute is the accuracy of those adjustments JM made to the Transaction Price.

371.  JM worked out the adjustments in the following ways.  He chose 4 REIT trading in the Hong Kong Stock Exchange.  He gathered their trading prices on certain specific dates.  He averaged them out and worked out the trend.  He agreed that he had in effect created an index, albeit containing only those 4 REITs (called the “Mitchell Index (1)” during cross‑examination for convenience, which term I adopt).  He then applied the movement of Mitchell Index (1) to the Transaction Price to reach his valuations as at the 1^st, 2^nd and 3^rd Dates.

372.  The fundamental problem with the use of Mitchell Index (1) is that the trading prices of those 4 REITs do not necessarily trace the value of the Car Park Development Interest.  In particular:

 (a)  The Car Park Development Interest concerns 49% interest in the Joint Venture which business activities were to let and ‌operate the Car Park Development;

 (b)  For the 4 REITs chosen, Link REIT had car park buildings as its income source.  The percentage was however only 21.9%.  The other 3 only had very small number of car parks on podium levels, generating income of 1.8% to 6.86%.  Overall, the average car park income of the 4 chosen REITs was only 8.7%;

 (c)  At §2.2.4 of his report of 1 April 2016[79], JM says:

“ I have made adjustments to [the Transaction Price] to reflect the impact on value due to time differences… To do this I have made reference to the share price movements of companies with comparable business activities …”

 (d)  I have serious concern as to whether the 4 REITs had “comparable business activities” compared with those which the Joint Venture undertook;

 (e)  Upon cross‑examination, JM said[80]:

“ I would accept that if one picks through each and every individual activity of any of the comparables, there are a whole bunch of things that are not directly comparable to the car park. The issue is: is there a better alternative? And that’s where I’ve come at it from, which is to look at the movements in the REITs as a whole, or at least on the basis of an index of the four, see how that’s moved, allowing for the fact that of course there’s a whole bunch of issues in there which may not be exactly the same as the car park, but then use that index as a way of, if you like, averaging out those risks, or ‘those effects’ would be a better way of describing it.”

 (f)  His view that there was no better alternative does not make the 4 REITs good comparables for working out the trend to effect the time adjustment;

 (g)  I regard as important also the following factors:

 (i)  REITs are collective investment schemes, whereas the Car Park Development Interest was simply part of a joint venture undertaking;

 (ii)  Collective investment schemes are regulated by the Securities and Futures Commission and the Stock Exchange of Hong Kong.  Changes in the regulatory environment could have affected their trading prices.  As explored by Mr Dawes during his cross‑examination with JM, during the material period, there were in fact such regulatory changes, eg REITs being permitted to engage in projects under development, and the diversity of their permitted holdings;

 (iii)  The types of investors are different.  The threshold for purchasing a single board lot of any of the REITs are not high, and is affordable to most investors.  The same cannot be said about the Car Park Development Interest;

 (iv)  There are many REITs on the market.  There were alternatives.  There was none in so far as the Car Park Development Interest is concerned;

 (v)  Another point that flows from (iv) is this.  JM’s choice of the 4 REITs would have affected the results of his valuations.  There were many other REITs on the market.  There was in particular on the market a REIT called Fortune. It had as part of its portfolio car parks.  Yet it was not included in the Mitchell Index (1).  JM gave the reason that it had a double listing which complicated matters.  I do not find that reason convincing;

 (vi)  Trading prices of REITs are also sensitive to a whole host of other factors (like investment strategies, views of investment bankers and brokerages, liquidity etc), none of which would have affected the Car Park Development Interest;

 (h)  JM also did not weight the 4 REITs.  When asked about it, JM said[81] that the application of any weighting would add a lot of subjectivity, and that there was already enough subjectivity in there.  He accepted later[82] that subjectivity was an inherent limitation in Mitchell Index (1).  He said also that the results that came out at the end, and the other checks and balances that he had, suggested to him that if he were to weight the REITs, he was just going to create more confusion to get the same answer.

373.  The two reasonableness checks adopted by JM give no cause for comfort:

 (a)  JM gathered certain strata‑titled sales of car parks in buildings in the vicinity of the Development and compiled what was called during cross‑examination Mitchell Index (2);

 (b)  But to start with, the car parking spaces inside the Car Park Development could not be sold off individually.  The nature of the Car Park Development Interest is fundamentally different from those of the strata‑tiled sales;

 (c)  In any event, the prices of the strata‑title sales gathered by JM would have been affected by factors (like localities and supply and demand) which had no relevance to the Car Park Development Interest;

 (d)  The prices JM gathered also varied very significantly;

 (e)  JM ultimately decided against using Mitchell Index (2);

 (f)  I do not see how Mitchell Index (2) and JM’s decision of not using it could have given JM any comfort in the use of Mitchell Index (1);

 (g)  The dividend discount method, the other reasonableness check, involved even more subjectivity.  The method involved the construction of capital asset pricing models with the adoption of initial rates of return between 7% and 8%. The valuations were very sensitive to the choice of that rate.  The results were then worked out, which fell within a range.  They did not accord with JM’s valuation.  They were thought to be too high.  In order to bring them down, he gave them a discount of 25%.  That discount was on account of GF’s minority interest and the lack of marketability.  JM was cross‑examined on the subjectivity of that 25%[83], that:

“ Q. Would you then accept that insofar as 25 per cent is concerned, that is not really backed by any calculation as such. It is pretty subjective?

A. It is pretty subjective but it is backed by various studies on both what are referred to in valuation terms as discount for lack of marketability and discount for lack of control.

Q. And of course you would accept, would you not, it is subjective in the sense that those studies do not give you a hard figure; it must depend on factors such as the nature of the business one is looking at, how it is operated, the industry that it is in, et cetera, et cetera?

   A.  Yes.”

Later, he said these[84]:

“ A. It’s very difficult, yes, exactly. That’s why I accept the 25 per cent is quite subjective. But it does look to other studies that have been done, as you have seen in the reports and which there are some supporting schedules to, to show the normal sorts of discounts that obtain.

Q. Anyway, you would see why I would suggest the rationale of just averaging out the differences between two extremes or two opinions, but you are not prepared to do it here because it’s not in accordance with what your view is?

   A.  Yes.  I could have put 50 per cent in here and then say average it and we come out with a number.  Because it’s so subjective in the first place, to just split the difference, it’s something I’m not particularly comfortable with.”

 (h)  In the end, the dividend discount method was again not adopted;

 (i)  Again, I do not see how the non‑adoption of one method deemed not reliable may render the adoption of Mitchell Index (1) reliable.

374.  The valuation method adopted by IC may be summarized as follows.

375.  He started off by noting the nature of the Car Park Development Interest. He noted the land grant restrictions, and the prohibition of any partial sale.  He commented that the Car Park Development Interest was an investment property.  The legal title for each car park could not be sold off space by space.  It was a pure investment.

376.  Further, IC stated during cross‑examination that it was completely impossible to value the Car Park Development Interest on a comparables basis as there was no sales evidence for that purpose.

377.  In the light of the above, IC applies an investment income approach.  A summary of his methodology when working out the valuations as at the 1^st and 2^nd Dates can be found in the Joint List of Issues prepared by the experts.  A slightly more detailed summary of his approach on all three of his valuations is set out in Schedule 5 to Mr Li’s Notes of RR on question of valuation dated 15 August 2019 (“Schedule 5”).  Mr Dawes has commented on it.  That summary, with Mr Dawes’ comments incorporated, in my view accurately summarize the methodology employed by IC.  It is as follows:

“ 2013 valuation = $66M (originally $61.45M):

· Investment (income) approach by capitalization of net income receivable by 49% owner at 1^st and 2^nd valuation dates, by applying yield of 4.28% being the weighted average of (1) sales transactions of 8 comparables (4.21%) and (2) implied yield of the Centaline offer (4.35%), less 5% for minority ownership;

· Cross-check valuation by reference to $60M actual sale in 2015, with no time adjustment made (after making reference to income and yield rates compared between date of sale and 1^st and 2^nd valuation dates).

· In his 1^st Rebuttal Report, IC revised his valuation to $66M. IC added a ‘more complex discounted cash flow analysis’ which ‘indicates the value would have just exceeded $70 million’ and IC ‘now considers market value was in the order of $66 million at both Valuation Dates’ having applied equal weight to the traditional yield‑based approach in the first report ($62m) and the DCF analysis ($70m) …

2018 valuation = $101M

· Same methodology as before i.e. capitalization of the estimated net profit from the operation of the Car Park Development in 2018 by an estimated yield (4%) derived from the same 8 comparables + 1 extra comparable of solely a car park block in Tuen Mun transacted in April 2017, but did not consider the $60M actual sale this time, nor used the discounted cash flow method (or any other method) for cross‑checking”.

378.  The investment income approach adopted by IC appears to be sound.  He explained that the precise net income was known.  They could be worked out from the audited accounts.  The yield rate could be worked out from the comparables gathered.  Eight were considered for the 1^st and 2^nd Dates. They were weighted.  An additional one (“C9”) from Tuen Mun in 2017 was considered for the 3^rd Date.  IC regarded C9 as particularly relevant as it comprised solely a car park block with no retail element.  A discount for the Car Park Development Interest being minority interest was applied.  The valuations were then worked out.

379.  The main criticisms levied against the methodology adopted by IC are that it is a complicated multi‑stage methodology.  It is said that it requires estimation and subjective judgment at almost every stage, and that there was an absence of critical rental and operational data for IC’s comparables to support his assumptions.  Some details are set out in Schedule 5 under the heading of “General criticism of the other’s approach”.  Mr Li also went through in quite some details with IC over cross‑examinations various such aspects of his methodology.  I cannot recite all the details in this judgement[85]. I record that I have considered them.  I set out some of my main considerations below:

 (a)  In respect of the first step of analyzing the income of the Car Park Development, it was suggested to IC that he got the allocation of the car parking spaces (ie the respective number of parking spaces allocated for park and ride, hourly, monthly etc) and the charges wrong;

 (b)  IC explained site inspections were carried out.  They worked out the allocation and charges from what they gathered on site.  They also worked them out from the building plans;

 (c)  No alternative calculations based on different allocation were however put to IC during cross‑examination;

 (d)  I record in this regard that 5 sets of alternative calculations (some based on different car park allocation) were annexed to the Schedule 9.  They have however never been put to IC.  I accept Mr Dawes’ submissions[86] that the production of such untested calculations for the first time in closing submissions should not be allowed.  I place no weight on them;

 (e)  In respect of the second stage of calculating the expenditure of the Car Park Development, Mr Li went into some details on water consumption, rates, government rents etc.  I accept IC’s evidence that those were insignificant (“bagatelle” in IC’s word);

 (f)  Mr Li spent a lot of time with IC on the 3^rd stage of gathering and considering comparables.  I accept IC’s evidence that he and his associates had used the best endeavours to find out whatever data matrix that was available — through inspections, talking to the car park managers, making telephone enquiries, internet searches, considering agency flyers etc;

 (g)  Mr Li cross‑examined IC on the differences between the comparables and the Car Park Development Interest.  IC explained that that was why he had weighted them.  I accept it is well within his expertise to do so;

 (h)  IC was cross‑examined on what was called the “spot rate”:

 (i)  For each comparable, IC worked out the overall yield rate;

 (ii)  When a particular comparable comprised a retail arcade and a car park, that overall yield rate would have to be broken down into the retail arcade yield rate and the car park yield rate;

 (iii)  I note the following explanations IC gave during cross‑examination on the approach he adopted, that:

“ … I’ve got over 40 years of experience dealing in the Hong Kong property market. Surveyors and valuers are permitted to make their own value judgments on issues such as yield subdivision, and that is precisely why I am considered to be an expert.

   It is my considered opinion that retail yields are very slightly higher than car park yields.  So, if the average is 5.07, I am giving an infinitesimally small uplift on the average to the retail at 5.1.  It may well be, my Lord, that a different valuer would say that it should be 5.3, and another one may even say it should be 4.7.  This is why there’s no definitive answer in valuation, but this is my provision.”

 (iv)  I accept IC’s evidence in this regard.  I accept it is within his expertise to do so;

 (i)  He was also cross‑examined on the operating expense ratio:

 (i)  From the audited account of the MTRC in relation to the Car Park Development, IC worked out the operating expense ratio to be 40%;

 (ii)  He regarded that ratio as being fair and reasonable;

 (iii)  He applied that ratio to the comparables;

 (iv)  On the other hand, JM, with reference to the 4 REITs he had chosen, worked out the operating ratios to be about 25%;

 (v)  In the course of cross‑examination, Mr Li showed to IC 2 tables of calculations[87]. Mr Li suggested that the 2 tables showed that by merely changing the operating expenses ratio from 40% to 25%, and with all other parameters adopted by IC unchanged, IC’s valuation as at the 3^rd Date would drop from HK$101 million to HK$78.80 million;

 (vi)  IC did not accept that.  He was given the chance to study the tables over night;

 (vii)  The following morning, Mr Li however produced another combined set of tables[88] with some revised calculations.  This time, it was suggested that with that same change (ie the operating expenses ratio dropped from 40% to 25% but with all other parameters adopted by IC unchanged), that valuation as at the 3^rd Date would only drop to HK$94.4 million;

 (viii)  IC maintained that the operating expense ratio he adopted was a fair and reasonable one.  He however agreed to the mathematics.

 (j)  It was further suggested that IC’s valuation was inconsistent with the market trend.  I accept his evidence in this regard that the Transaction Price was probably concluded on the first offer, and hence undervalued;

 (k)  He was cross‑examined on the 5% discount he gave in respect of the minority nature of the Car Park Development Interest.  He maintained his position.  Whilst he accepted that MTRC is locked in as the manager, he felt certain that any potential buyer would look at the accounts history and see that MTRC had been running it very well and had been profit‑maximising.  He also confirmed that he had taken into account the marketability of the Car Park Development Interest when deciding the percentage discount he applied.  I accept that it was within his expertise to make that decision.

380.  Despite the cross‑examination and the submissions arising, and for the reasons set out above, I conclude that the methodology adopted by IC is a sound one.  I prefer the approach adopted by IC to that adopted by JM.

381.  I accept on the other hand IC’s valuation may have room for adjustments.  This is particularly so given the operating expense ratio discussed above.  I accept Mr Dawes’ submissions[89] that the Court is entitled to, on a broad-brush basis, make minor adjustments to the valuation.

382.  On the above basis, I bear in mind the difference between HK$101 million and HK$94.4 million.  I will also make some adjustments to reflect certain mathematic errors IC is said to have made.  I assessed the Car Park Development Interest as at the 3^rd Date as being HK$95 million.

O.6.     Conclusion on Issues #4 and #6

383.  The results are as follows:

 (a)  the value of the Commercial Development as at the 2^nd Date is assessed at HK$507 million;

 (b)  the value of the Car Park Development Interest as at the 3^rd Date is assessed at HK$95 million;

 (c)  in respect of the value of the Car Park Development Interest, I give a 40% discount to reflect the possibility that MTRC would have exercised its right of first refusal, resulting in HK$57 million;

 (d)  the aggregate of (a) and (c) is HK$564 million;

 (e)  I deduct from (d) the agreed price of HK$399.99 million;

 (f)  the result is HK$164.01 million.

384.  For Issue #4, I assess the damages to be awarded to GF against RR as being HK$164.01 million.

385.  No submission has been made to me to the effect that the damages to be awarded to GF against Chun Wo should be any different.  I award the same sum of HK$164.01 million.

386.  The respective liabilities of RR and Chun Wo are joint and several.

P.     Issue #7

387.  The issue is whether GF had committed slander of title by reason of its publication of the letters dated 29 January 2014 from ILL to MTRC, the then directors of Chun Wo, and Deloitte Touche Tomatsu; and the letters dated 19 February 2014 from ILL to Bank of China and Hang Seng Bank Limited.

P.1.      The relevant facts, and my findings

388.  On 13 December 2013, Chun Wo issued the 13/12 Public Announcement.

389.  The 13/12 Public Announcement, under the heading of “Use of proceeds”, stated that:

“ The Company intends to use part of the net sales proceeds from the Disposal to repay certain bank borrowings and the remaining balance to be used by the Group for general working capital or pursuing investment opportunities in property and business development.”

390.  On 16 December 2013, GF issued the Writ in HCA 2449 against RR.

391.  On 29 January 2014, ILL upon the instructions of GF issued a number of letters (the “29/1 Letters”):

 (a)  One of those letters was to the MTRC (specifically the “29/1 MTRC Letter”).  Mr Li highlights the following paragraph:

“ As legal proceedings are on foot, we write to put you on express notice that should the proceeds from the Disposal be transferred/distributed to Chun Wo and/or other members of the Group in defiance of our client’s Claim, this may constitute fraudulent evasion of civil liability on the part of those approving/authorizing/sanctioning such transfer/distribution, and our client would hold all those persons responsible for all their loss and damage arising therefrom.”

 (b)  Another was to the directors of Chun Wo.  Mr Li highlights the following paragraph:

“ As legal proceedings are on foot, we write to put you on express notice that should the proceeds from the Disposal and/or any other asset of [RR] be transferred/distributed to Chun Wo and/or other members of the Group in defiance of our client’s Claim, this may constitute fraudulent evasion of civil liability on the part of those approving/authorizing/ sanctioning such transfer/distribution, and our client would hold all those persons responsible for all their loss and damage arising therefrom.”

 (c)  Another was issued to Deloitte Touche Tomatsu, Chun Wo’s auditor.  Mr Li highlights the following paragraph:

“ As legal proceedings are on foot, we write to put you on express notice that should the proceeds from the Disposal be transferred/distributed to Chun Wo and/or other members of the Group in defiance of our client’s Claim, this may constitute fraudulent evasion of civil liability on the part of those approving/authorizing/ sanctioning such transfer/distribution, and our client would hold all those persons responsible for all their loss and damage arising therefrom.”

392.  On 19 February 2014, ILL upon the instructions of GF issued 2 further letters to each of Bank of China and Hang Seng Bank Limited.  Those letters (the “19/2 Letters”, and together with the 29/1 Letters, “the said Letters”) contained the following paragraph, which Mr Li highlights:

“ As legal proceedings are on foot, any transfer/distribution of such proceeds from the Disposal to Chun Wo and/or other members of the Group in defiance of our client’s Claim or any judgment to be obtained thereunder may constitute fraudulent evasion of civil liability on the part of those approving/ authorizing/sanctioning such transfer/distribution.”

393.  I will for ease of reference refer to those paragraphs which Mr Li has highlighted (and as reproduced above) the “Subject Paragraphs”.

394.  The contents of all of the said Letters in fact follow a similar pattern:

 (a)  notification of GF’s commencement of HCA 2449 against RR, an indirect wholly owned subsidiary of Chun Wo;

 (b)  identification of the capacity of the recipients in which the letters were addressed;

 (c)  reference to the previous practice of the Chun Wo Group on the use of such funds;

 (d)  reference to the 13/12 Public Announcement;

 (e)  then the Subject Paragraphs which Mr Li has highlighted; and

 (f)  in the letters to the directors of Chun Wo and MTRC, a final paragraph urging the recipients to seek appropriate legal advice to ensure proper fulfillment / discharge of their duties.

395.  In so far as his mental status when giving the instructions to issue the letters, Clement Mak said this during cross‑examination:

“ However, what we are talking about all belongs to the nature of public documents. At the time when I issued this letter, I had never borne any wish of disreputing or damaging the reputation of Chun Wo. I did not have this in my mind at all. What I was concerned or what was in my mind was purely the money, because when or by the time all the moneys had been withdrawn or diverted, what we can obtain upon successful litigation would just be nothing except a piece of blank paper, because to them, to this party, Rich Resource was also a small company, whereas to them Chun Wo -- well, I’m not sure whether it was 100 per cent in that capacity, but a mother company. If the mother companies instructed the relate parties to withdraw or divert all the money from it, and they coincidentally did not come across those circulars, then they would accept the instructions of Chun Wo, being a holding company, to divert or withdraw the money, all the money.

As a result, after we had tried hard to fight back to get back the money or proceeds we should have earned, then it would be futile or something of no value, even though we have finally won the case.”

I accept his evidence in that regard.

396.  I accept Clement Mak’s evidence[90] that the purposes of those letters were to put the recipients on notice of HCA 2449, to repeat Chun Wo’s intention stated in the 13/12 Public Announcement in respect of the use of the proceeds, and to allow their recipients to consider seeking appropriate legal advice before handling those proceeds. 

P.2.      RR’s claim

397.  RR’s claim, as summarized by Mr Li[91], goes as follows:

“ (1) The said [Letters] refer to RR.

(2) The said [Letters] made a false claim that RR was not entitled to the sale proceeds as by releasing the money to RR the addressee of the said [Letters] would be held liable for ‘fraudulent’ evasion of civil liability. The false claim must have been made on the basis that RR had no title to the money.

(3) The claim was made maliciously as GF under legal advice must know that whatever claim it had against RR for alleged breach of the [Memorandum] that would only be a claim for damages and not a proprietary claim over the sale proceeds of the [Commercial Development].”

At §55 of his Notes on Closing Submission, Mr Li further submits that it is plain by the tenor of the said Letters that GF was asserting that RR was not entitled to the sale proceeds.

P.3.      Discussions

398.  The law is not in dispute.  Mr Li has referred me to Gatley on Libel and Slander 12^th ed, §§21.2, 21.4, 21.5, 21.6, 21.7, 21.8, 21.9, 21.16 and 21.17, and section 24 of the Defamation Ordinance, Cap 21.

399.  Mr Pow has referred me to Hong Kong Wong On Travel Service Ltd v Hong Tai Citizens Travel Services Ltd [2001] 2 HKLRD 481 in relation to the elements of the tort, that RR bears the burden of proving the following ingredients[92]:

“ (1) The defendant has published about the plaintiff words which are false.

(2) The defendant did so maliciously in that either:

(a) he knew when he published the words that they were false or he was reckless as to whether they were true or not; or

(b) he did so for the purpose not of advancing his own interest but of injuring the plaintiff.

(3)  Special damage has followed as the direct and natural result of the publication.  But special damage need not be alleged or proved where the words were published in writing and were calculated to cause pecuniary damage to the plaintiff.”

400.  In respect of the element of malice, Mr Pow relies also on Wong On Travel, per Chu J at 493F to J, that:

“ … It is not unusual for an objective to promote one’s business to be accompanied by an incidental desire to weaken that of a trade rival. It will be casting the net too wide if malice can be inferred for a defendant who published words in pursuit of his own interest but with the incidental consequence of harming the plaintiff ... Having regard to human complexities and to avoid the danger of unduly widening the tort of malicious falsehood, I have come to the view that the improper motive or the motive to injure has to be a direct and dominant one.”

401.  Mr Pow has also placed emphasis on §21.6 of Gatley, that slander of title requires “a false statement in disparagement of another person’s title to his property”.

402.  I have considered the contents of the said Letters carefully.  I accept Mr Pow’s submissions that according to their ordinary and natural meaning in their proper context, they do not represent that GF has a better title claim than RR to the proceeds.  Nor has a proprietary claim in respect of the proceeds been made by GF.  The tenor of the said Letters is that the proceeds should be retained by RR, so that they may be utilized to satisfy the successful personal claim that GF brings against RR in the event that it becoming successful.

403.  On the element of malice, I also accept Mr Pow’s submissions that GF’s interest was to recover damages from RR.  Malice has not been established.

P.4.      Conclusion on Issue #7

404.  For the reasons set out above, I conclude that GF has not by issuing and publishing the said Letters committed any slander of title.

Q.     Issue #8

405.  Issue #8 asks whether GF committed procurement of breach of contract by MTRC by reason of its publication of the 29/1 MTRC Letter.

406.  I have discussed the law on procurement of breach above.

407.  Mr Li submits[93]“[the 29/1 MTRC Letter] was written with an intention to interfere with the performance of the contract between MTRC and RR by asking MTRC not to release the money”, and that[94] “[there] cannot be any doubt that that as result of [the 29/1 MTRC Letter], MTRC did not release the money as can be gathered from GH’s letter to RR dated 17 February 2014 … in which [the 29/1 MTRC Letter] was referred to. MTRC only came to release the money on 30 April 2014 after RR had confirmed the indemnity given to MTRC”.  RR as a result counterclaims for loss in interest.

408.  On the evidence, I am not satisfied that RR has established that GF actually knew that it was inducing a breach of contract.

409.  On the question of the mental status of GF, I refer to the following evidence of Clement Mak[95], which I accept as being inherently probable, that:

“Q. Given Chun Wo -- the termination of the transaction and the sale to High Peace, you wanted at the time to hit back at Chun Wo by speculation that there may be fraudulent evasion.

A. I disagree. Well, it had never occurred in my mind.

Q. I don’t accept that, Mr Mak. You also wanted to obstruct or delay MTR transferring any proceeds to Rich Resource.

A. Disagree about this absolutely.  In fact, we earnestly wanted MTRC to transfer the proceeds to Rich Resource as soon as possible.  However, what we did not want to see was that Chun Wo would transfer away all the money from Rich Resource.  In fact, we very much wanted MTRC to transfer the money to Rich Resource as early as possible.”

410.  In my view, RR’s claim also failed on causation:

 (a)  As pleaded at §42(d) of RR’s Amended Defence and Counterclaim:

“ Instead of releasing the said sale proceeds to [RR] on 17 December 2013 and 13 February 2014 upon the Disposal of the Commercial Development pursuant to a sale and purchase agreement signed by High Peace and the MTRC dated 13 December 2013 …, MTRC only came to do so on 30 April 2014. Hence, [RR] has suffered loss of interest on the said sale proceeds in the amount of HK$826,341.10 …”

 (b)  On the evidence, I accept Mr Pow’s submissions that even if MTRC were in breach, that occurred more than 1 month prior to the 29/1 MTRC Letter, so that RR has failed to show procurement/inducement, or causation.

 (c)  I note in this regard that the contents of the letter of 17 February 2014 from GH which Mr Li relies on.  In that letter, GH:

 (i) referred to the 29/1 MTRC Letter;

 (ii) summarized the warning which MTRC had received from GF;

 (iii) said that:

“ Accordingly, we put on record that our client would hold Chun Wo and/or [RR] liable for any loss and/or damage, including legal costs on a full indemnity basis now already incurred and to be incurred, which our client may suffer or sustain in relation to the matters as mentioned in the [29/1 MTRC Letter].”

 (iv) GH did not say that the reason for MTRC withholding payment was the 29/1 MTRC Letter.

411.  For the above reasons, I conclude that RR has failed to establish that GF had committed procurement of breach of contract by MTRC by reason of its publication of the 29/1 MTRC Letter.

R.     Issue #9

412.  Issue #9 asks, if Issues #7 and #8 have been answered in the affirmative, what is the quantum of damages to be awarded to RR.

413.  Given my conclusions on Issues #7 and #8, Issue #9 is not engaged.

S.     Issue #10

414.  Issue #10 asks whether the publication of the said Letters constituted defamation of and concerning Chun Wo.

415.  Chun Wo relies on those same said Letters (except those to the directors of Chun Wo), and in particular the Subject Paragraphs.

416.  In his written opening[96], Mr Chua summarizes Chun Wo’s case as follows:

“ … this Court should find that the natural and ordinary meaning of the Words, particularly by reading between the lines, is that Asia Allied intended to conduct itself in the following manner:-

(a) Asia Allied’s approach to the claim is one of defiance of a just claim;

(b) Asia Allied would authorize or approve the transfer of proceeds of the disposal to entities in the Asia Allied group away from RR, to evade civil liability, and would do so in a fraudulent manner;

(c) Asia Allied would approve or authorize RR to dishonour judgments of the Court, or would otherwise frustrate the Plaintiff’s effort to enforce such judgments;

(d)     In doing the above, Asia Allied is and was dishonest, fraudulent, and unethical in the manner it conducts its business.”

417.  Mr Pow highlights the conditional nature of the Subject Paragraphs.  He highlights in particular the words “should” and “may” therein.  He refers this Court to Galloway v Telegraph Group [2005] EMLR 7, wherein Eady J observed at §§177-178 that:

“ 177. I turn to consider the alternative plea of fair comment, which is based upon the right to comment on the Iraqi documents themselves. Mr Rampton’s primary point on fair comment was that the relevant words sought to be so protected were allegations of fact rather than comment. In view of the structure of the pleading, however, there is another fundamental problem with the defendants’ case on the leader articles. It is expressed on a hypothetical or conditional basis. They pray in aid the conditional formula adopted in parts of ‘Saddam’s little helper’.

178.  The conceptual problem is this. If one says, ‘If Mr Justice X took a bribe, he is not fit to hold office’, that is not of itself defamatory of Mr Justice X.  It would be true as a moral proposition whichever name appeared.  It would equally be true of Mr Justice Y and Mr Justice Z.  The function of a plea of fair comment is to defend a defamatory comment about the relevant claimant.  I have never encountered a plea of fair comment in this conditional form previously and the reason is not far to seek.  A statement in that form is not defamatory.  Of course it may be, depending upon a particular context, that the words do give the impression that the claimant actually did the reprehensible act in question.  If so, the appropriate defence would be one of justification, either on the basis of ‘guilt’ or perhaps ‘reasonable grounds to suspect’.  That is a strategy which has been spurned by these defendants.”

418.  I have considered the contents of the Subject Paragraphs carefully.  I do not confine myself to the form of the words.  I have to bear in mind their tendency and effect.  I have considered them in the context of the overall contents of the said Letters as I have set out and analyzed above.  I note further the conditional nature of the Subject Paragraphs.  Overall, I agree with Mr Pow that an ordinary and reasonable person would have regard to the context of the said Letters and would appreciate that the purpose of the said Letters was to put the recipient on notice of GF’s claim against RR and the possible legal ramifications.  I form the view that no reasonable reader will regard the said Letters as having advanced an allegation of fact that anyone has committed or has the intention of committing a crime of fraud.  I do not accept Mr Chua’s submissions that the Subject Paragraphs “gave the clear impression to an ordinary person that Asia Allied intended to conduct itself in a fraudulent and dishonest manner”. 

419.  In their proper context, I do not believe that the Subject Paragraphs tend to lower Chun Wo in the estimation of right‑thinking members of society generally.  I find that they are not defamatory in nature.

420.  I find the publication of the said Letters did not constitute defamation of and concerning Chun Wo.

T.     Issue #11

421.  Issue #11 asks whether, if Issue #10 has been answered in the affirmative, GF has a valid defence on the ground that the said publications were in legitimate protection and pursuance of its legal rights and interest.

422.  In the light of my view on Issue #10, Issue #11 is not engaged.  In deference to the submissions made, I make the following observations:

 (a)   Both Mr Pow and Mr Chua have cited Multi‑Winner Investment Ltd v Lau Ming Yee[2017] 1 HKLRD 328.  One scenario where a defence of qualified privilege is available is when the maker is acting in pursuance of an interest of his and the recipient has such a corresponding interest or duty in relation to the statement;

 (b)  I have accepted Clement Mak’s evidence that the said Letters were issued so that GF’s efforts to sue back its loss would not be futile;

 (c)  I accept Mr Pow’s submissions that the recipients of the said Letters all had a corresponding interest in receiving them, as they were those who would   be involved in the handling of the proceeds;

 (d)  If necessary, I would have held that there was no malice involved; and

 (e)  If necessary, I would have concluded that the defence of qualified privilege would apply.

U.     Issue #12

423.  Issue #12 asks, whether, if Issues #10 and #11 have been answered in Chun Wo’s favour, what the quantum of damages to be awarded to Chun Wo is.

424.  In the light of my conclusions above, Issue #12 is not engaged.

V.     Overall disposition

425.  For all the reasons set out above, I make the following orders:

 (a)  Judgment be entered in favour of GF against RR, in the sum of HK$164.01 million as assessed;

 (b)  RR’s counterclaim be dismissed;

 (c)  An interest order nisi that RR:

 (i) do pay pre‑judgment interest to GF on the aforesaid sums at the rate of prime plus 1% from 16 December 2013 up to the date of the judgment;

 (ii) do pay post‑judgment interest to GF on the aforesaid sums at judgment rate from the date of judgment up to the date of full payment;

 (d)  Judgment be entered in favour of GF against Chun Wo, in the sum of HK$164.01 million as assessed;

 (e)  The liabilities of RR and Chun Wo under the 2 Judgments be on a joint and several basis;

 (f)  Chun Wo’s counterclaim be dismissed;

 (g)  An interest order nisi that Chun Wo:

 (i) do pay pre‑judgment interest to GF on the aforesaid sums at the rate of prime plus 1% from 6 March 2014 up to the date of the judgment;

 (ii) do pay post‑judgment interest to GF on the aforesaid sums at judgment rate from the date of judgment up to the date of full payment.

 (h)  A costs order nisi[97] that:

 (i) RR shall bear the costs of HCA 2449 (or the part of the costs attributed thereto), including all costs reserved, with certificate for 2 Senior and 1 junior Counsel; and

 (ii) Chun Wo shall bear the costs of HCA 371, (or the part of the costs attributed thereto), including all costs reserved, with certificate for 2 Senior and 1 junior Counsel.

426.  The issues involved in the case are both complicated and technical. This Court is grateful to counsel for the assistance they have rendered.