DATA WORLD SOLUTIONS LTD AND ANOTHER v. CHAN WING CHEONG AND OTHERS

DCCJ 2284/2019

[2024] HKDC 66

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2284 OF 2019

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JUDGMENT

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A.  INTRODUCTION

1.  This is a dispute arising from the sale and purchase of the 2^nd Plaintiff, Poly Asia (China) Company Limited (“PA China”) between (1) the purchaser, the 1^st Plaintiff, Data World Solution Limited (“Data World”) and (2) the sellers, the 1^st Defendant, Chan Wing Cheong (“Paul Chan”) and the 2^nd Defendant, Chan Chi Yan Eugenia (“Eugenia Chan”).

2.  At trial, Mr. Tom Ng (together with Mr. Billy Liu) appeared for the Plaintiffs, while Ms. Vivian Chan (together with Ms. Teresa Yu) appeared for the Defendants. At the outset, I wish to expressly acknowledge that counsel on both sides had at all times conducted the trial reasonably and rendered helpful assistance to the court throughout.

3.  Data World is a company incorporated in Hong Kong carrying on the business of providing IT business management solutions from enterprise resource planning (“ERP”), human resource management and customer relationship management to IT infrastructure and network security. At all material times, Mr. Ben Ng Wing Hong (“Ben Ng”) was its director and indirect shareholder. A Mr. Mak Che Fai Lawrence (“Lawrence Mak”) was also a director of Data World who was also involved in the negotiations of the sale of PA China to Data World.

4.  Eugenia Chan was the daughter of Paul Chan, holding 0.01% of the shares in PA China. Prior to the sale of PA China to Data World in early 2018, Paul Chan and Eugenia Chan held all the shares in PA China. Eugenia Chan was never involved in any business activities relating to PA China and she simply held the shares in PA China as a nominee of his father, Paul Chan.

5.  PA China was also a company engaged in the business of providing and distributing IT business solution products.

6.  Paul Chan has also been running his IT business since 1990s with inter alia the following companies (“PA Group”):-

(1)  Poly-Asia Systems, a sole proprietorship registered in 1992 and later ceased in 1993;

(2)  The 3^rd Defendant, Poly-Asia E-Technology Limited (“PA E-Tech”); and

(3)  The 4^th Defendant, Poly-Asia E-Technology (Holdings) Limited (“PA Holdings”), incorporated in 1995.

7.  The PA Group (including PA China) has conducted accounting systems and ERP business since 1992 and software licensing of Pervasive database management system business (“Pervasive Business”) since 1995.

8.  Prior to the sale of PA China to Data World, PA China had attained and maintained the “gold status” as a Microsoft ERP partner since 2006. The Microsoft ERP gold partner status is the highest level of partnership status as assessed by Microsoft based on revenue requirements. PA China’s ERP business as a Microsoft ERP gold partner is referred to hereinbelow as “the Microsoft ERP Business”.

B.  THE SALE AND PURCAHSE AGREEMENT

9.  As Ben Ng, Lawrence Mak, and Paul Chan were all in the IT industry, they had known each other for some time. According to Ben Ng, he and Paul Chan had been acquainted with each other since about 1995, whereas Paul Chan said that he knew Ben Ng since about 2000. In any event, they seem to have known each other for many years prior to 2017.

10.  In about February 2017, Lawrence Mak and Paul Chan met incidentally and had a casual chat. In the course of their conversation, Paul Chan said in effect that his business was mediocre and that he could retire if someone would purchase his business. Lawrence Mak understood from this that Paul Chan intended to sell his business. Lawrence Mak then duly informed Ben Ng about Paul Chan’s intention to sell his business. Since Data World was looking to expand their business, they got in touch with Paul Chan to explore the possibility of a sale and purchase of Paul Chan’s business.

11.  On about 13 February 2017, Ben Ng called Paul Chan and asked whether Paul Chan was intended to retire and interested in a sale of his business. Paul Chan replied that if he could sell his business, he might be able to retire. They scheduled to meet on 16 February 2017 to further discuss the matter.

12.  Ben Ng and Paul Chan gave slightly different accounts of what was discussed in the meeting on 16 February 2017:-

(1)  According to Ben Ng, he has ascertained from Paul Chan whether he wished to sell all of “Poly Asia” business and was given an affirmative response by Paul Chan as Paul Chan wanted to retire completely. Ben Ng stressed that it was on this understanding that he agreed to proceed further with the discussion. It was then agreed that Paul Chan would prepare more detailed information about PA China’s business and operations for another meeting;

(2)  According to Paul Chan, Ben Ng asked him whether he was a Microsoft ERP gold partner to which Paul Chan replied yes. Ben Ng then informed Paul Chan that he was interested in becoming a Microsoft ERP gold partner. There were some discussions on the ERP market and Paul Chan gave a brief introduction about his business. Towards the end of the meeting, Ben Ng asked if the price for Paul Chan’s business would be expensive. Paul Chan then proposed that they should first enter into a Non-disclosure Agreement (“NDA”) before any further negotiations. Ben Ng then asked Paul Chan to send him a draft NDA and suggested that they should meet up again for further discussions.

13.  When asked during cross-examination, Ben Ng said that he did not remember whether they discussed PA China’s ERP gold partner status with Microsoft. However, he knew at that time that PA China was conducting ERP business with Microsoft. In any event, despite the differing accounts on the meeting on 16 February 2017, it seems clear enough that nothing was substantially agreed and the parties would have to negotiate further. On the next day, Paul Chan sent a draft NDA to Ben Ng.

14.  On 21 February 2017, Ben Ng and Paul Chan met up again for further discussions (“21 Feb Meeting”). Again, both Ben Ng and Paul Chan gave differing accounts of this meeting:-

(1)  According to Ben Ng, Paul Chan only verbally presented information as the NDA has not yet been signed. The following matters were said to have been discussed:-

(a)  Paul Chan informed Ben Ng that the business of PA China basically consisted of (i) the Microsoft ERP Business, and (ii) the Pervasive Business;

(b)  Paul Chan said that PA China was a Microsoft ERP gold partner, and this status has great value as this would entitle PA China to have more support from Microsoft and it was actual proof of competence to potential customers;

(c)  The Microsoft partnership license was attached to the domain name “polyasia.net” and the “Poly Asia” brand name, which had been driving and supporting the business of PA China operated under the Microsoft partnership license. The long attachment of the PA China’s domain names and the “Poly Asia” brand name to the Microsoft partnership license had greatly enhanced the value of the Microsoft partnership license. If a different domain name and brand name was to be used by PA China to distribute the Microsoft products in place of the domain name “polyasia.net” and the “Poly Asia” brand name, the business of PA China would be seriously and adversely affected, and the source of potential customer would have to be built up from scratch;

(d)  PA China had 25 years of history and had established the “Poly Asia” brand name in the IT service industry and also on the internet, such that many of PA China’s new businesses came from internet search in which PA China had a high exposure priority because of the early registration of its two domain names “polyasia.com” and “polyasia.net”; and

(e)  Ben Ng proposed that Paul Chan could consider retaining part of his shareholding in PA China (about 30% to 49%), and continue to be involved in the “Poly Asia” business, which was firmly rejected by Paul Chan as he intended to retire from the IT business.

(2)  According to Paul Chan, at the 21 Feb Meeting:-

(a)  Ben Ng informed Paul Chan that Data World had a lot of marketing and sales problems with one of their ERP vendors. Ben Ng also told Paul Chan that a product from another ERP vendor is a dying product. Thus, it was Ben Ng’s objective to look for an existing Microsoft ERP gold partner with customers’ base, consultant team and revenue for Data World to acquire. If the sale could proceed, Data World would not need to start from scratch. Ben Ng in cross-examination agreed that he had told Paul Chan of these matters;

(b)  There were general discussions of the ERP market where Ben Ng remarked that the advantage to do ERP business is that once users used the ERP product and services, the users would have to keep paying for the services and products every year. Again, Ben Ng in evidence agreed that this was in line with what he told Paul Chan;

(c)  Ben Ng said that he would ask Lawrence Mak to talk to Paul Chan about the details of operations, but Paul Chan responded that it would be better to talk further after the NDA is signed; and

(d)  According to Paul Chan, nothing about his retirement or even the sale of his company was discussed at the 21 Feb Meeting. The discussion was mainly focused on the ERP market. He has not been asked to retain any shareholdings in PA China since the discussion was still at the initial stage and it was simply premature to know what transaction would be carried out. Furthermore, it was also because no NDA was then signed by the parties.

15.  On about 27 February 2017, the NDA was signed by the parties. On 1 March 2017, Ben Ng messaged Paul Chan and asked to discuss some financial data before moving on to discuss operations. Ben Ng and Paul Chan duly met up on 2 March 2017 (“2 Mar Meeting”). Again, both Ben Ng and Paul Chan’s evidence differs:-

(1)  Ben Ng stated that Paul Chan had disclosed to him that the business of PA China was not good and had in fact suffered losses over recent years. Paul Chan reiterated the “intangible values” of PA China including its gold partnership status for Microsoft ERP, the “Poly Asia” tradename, and the long historical presence of the “polyasia.com” and “polyasia.net” domain names. Ben Ng also explained to Paul Chan that they were only keen to consider the acquisition on the basis of the trade name, historical presence, etc. Ben Ng also informed Paul Chan that they were not keen on acquiring the Pervasive Business. Ben Ng also asked Paul Chan to prepare a detailed report about PA China’s operations and financial data; and

(2)  Paul Chan, on the other hand, said that the only financial data he told Ben Ng was about the number of customers, monthly average revenue, and the number of consultants of his business at the time. In the 2 Mar Meeting, they only talked about the general scope of PA China’s business without any serious discussions on the deal to be made, what Data World would acquire, or any price issue.

16.  Immediately after the 2 Mar Meeting, Ben Ng emailed Paul Chan on the same day and informed Paul Chan that “they can go ahead for more detail discussion of the project” and that Ben Ng had instructed Lawrence Mak to follow up with Paul Chan for detail discussions of the operations and financial aspects. As a result, a meeting was set up between Paul Chan and Lawrence Mak at the office of PA China on 8 March 2017, where Lawrence Mak said that Paul Chan emphasized the long history of the “Poly Asia” brand name and the wide exposure to prospective customers owing to its domain names. Paul Chan denied that he uttered any such emphasis.

17.  On 21 March 2017, Paul Chan provided Ben Ng with an outline showing the businesses of PA China (“the March Business Outline”). The March Business Outline contained financial data as well as a suggested valuation of PA China in the sum of HK$3,424,258 based on various financial information stated therein.

18.  The negotiations subsequently fell stale and there were no exchanges between the parties until October 2017. On 23 October 2017, Paul Chan reached out to Ben Ng and they met for discussions (“23 Oct Meeting”), where Paul Chan agreed to exclude the Pervasive Business from PA China, essentially selling only the Microsoft ERP Business to Data World.

19.  Ben Ng also alleged that at the 23 Oct Meeting he had made clear to Paul Chan that he agreed to continue the negotiations on the conditions that: (i) after the sales, Paul Chan would not engage or be involved in any IT business with the brand “Poly Asia”, (ii) Paul Chan would not operate the Pervasive Business under the “Poly Asia” brand name, and (iii) there must be an arrangement to ensure a smooth transition to new management and to ensure renewal of the Microsoft partnership license.

20.  Paul Chan however alleged that they did not have any discussions on the brand name or domain names, and that he would obviously not be retiring as he retained the Pervasive Business and would not sell to Data World all the business under the “Poly Asia” brand.

21.  On 31 October 2017, Ben Ng and Paul Chan met at Ben Ng’s office where Paul Chan provided Ben Ng a business outline titled “Microsoft Gold Partner” (“the October Business Outline”). On 1 November 2017, Paul Chan asked Ben Ng whether it is possible for the parties to have something signed in respect of what was discussed. Ben Ng suggested that Paul Chan should list out what was discussed in their meeting and subsequently sign a memorandum of understanding. As such, on 3 November 2017, Paul Chan circulated the minutes of the meeting of 31 October 2017 (“31 Oct Minutes”), where Ben Ng subsequently also confirmed that it contained an accurate record of what had transpired and could be taken as the memorandum of understanding. The 31 Oct Minutes recorded, among other things, that:-

(1)  Paul Chan presented the October Business Outline to Ben Ng;

(2)  Ben Ng inquired with Paul Chan who could run the whole operation if Paul Chan is no longer in an active operation role. Paul Chan suggested the following:-

(a)  To assign one Data World senior staff to be General Manager;

(b)  Paul Chan to serve as a paid adviser for further 12 months to assist the overall operation transition;

(c)  Data World to assign one accountant to take over the accounting; and

(d)  Regarding sales and marketing, it would be a good idea to share resources with Data World in future marketing activities.

(3)  Paul Chan requested HK$1,500,000 to sell off PA China’s Microsoft related operations and business and a monthly fee of HK$25,000 as adviser’s fees for 12 months, to which Ben Ng agreed.

22.  On 5 December 2017, Paul Chan sent a “Note for drafting S&P Agreement” (“the Drafting Note”) to Ben Ng listing the subject matter to be covered under the eventual sale and purchase agreement. The Drafting Note did not refer to any intellectual property rights or domain names. The price was revised to HK$1,540,000 to take into account a sum of HK$40,000, being the expenses for renewing the Microsoft partnership license for the Microsoft ERP Business.

23.  On 12 December 2017, Paul Chan sent Ben Ng a draft sale and purchase agreement. Thereafter, the parties had various discussions on the terms of the draft sale and purchase agreement up to 8 January 2018:-

(1)  On 13 December 2017, Ben Ng objected to the non-refundable nature of the deposit upon signing of the sale and purchase agreement;

(2)  On 16 December 2017, Paul Chan replied with his suggestion on the issue regarding the non-refundable deposit;

(3)  On 17 December 2017, Ben Ng suggested to Paul Chan that he should seek legal advice as to the viability of the terms in relation to the deposit as proposed by Paul Chan;

(4)  On 20 December 2017, Ben Ng wrote to Paul Chan rejecting the term regarding non-refundable deposit. On the same day, Paul Chan replied that he is willing to insert terms to allow the deposit to be refundable in the event that there is a breach by the sellers;

(5)  On 29 December 2017, Ben Ng informed Paul Chan by email that he had read through the draft sale and purchase agreement and specifically requested inter alia appending a list of customers and the audited accounts and management accounts to the draft. Other than the comments provided in that email, Ben Ng stated that he had no other comments; and

(6)  On 8 January 2018, a final draft of the sale and purchase agreement was sent to Ben Ng with the requested documents to be appended thereto.

24.  On 12 January 2018, Paul Chan and Eugenia Chan (as vendors) and Data World (as purchaser) entered into a sale and purchase agreement (“the SPA”) under which the entire shareholding of PA China was sold to Data World. The recital to the SPA provides:-

“WHEREAS

[PA China] is now having 400,000 fully paid shares of HK$1.00 each, out of which Paul CHAN holds 399,999 shares, representing 99.9% of the total issued shareholding and Eugenia CHAN holds 1 share, representing 0.01% of the issued shareholding.

AND

[PA China] is now eligible of Microsoft Partner Competency in Gold Enterprise Resource Planning and Silver Cloud Platform and shall be until 31 January 2019.”

25.  The SPA further provides:-

“1. In consideration of HK$1,540,000 and subject to the terms and conditions hereof by the parties on the event date:

(a) The Vendor shall sell and the Purchaser shall buy 400,000 shares in the share capital of [PA China] (the ‘Shares’)

(b) The lists of customers including their yearly BREP and Support values are agreed and shown as the following:

• List of Customers as per Microsoft Partner Portal with BREP value as at 1 January 2018 (Annex A(1))

• List of Poly-Asia (MS Dynamics) Support Customers (Annex A(2))

(c) The audited balance sheet and financial statements of [PA China] as at 31.03.2017 (Annex B) is included; and

(d) The management accounts as at 31 December 2017 are included…

…

4. Upon completion, the Vendor shall deliver to the Purchaser:-

(a) Share Certificate representing the Shares.

(b) Bought and Sold note and Instrument of Transfer for the Shares duly executed by the seller and the transferor.

(c) [PA China] shall produce a Board Resolution for the approval of the transfer of Shares and register the Purchaser as the registered owner of the Shares.

…

6. In the next 12 months after completion, Paul CHAN shall act as an Adviser to [PA China] for its management support at the rate of HKD25,000 per month starting from 1 February 2018 payable at the end of each month… [PA China] shall sign a management agreement with a company designated by Paul CHAN for such management support and the managing company shall present an invoice every month for that charge to [PA China].

7. WARRANTIES AND INDEMNITIES BY VENDORS

7.1 The Vendors represent, warrant and undertake to the Purchaser and its respective successors in title, the Warranties contained in the Schedule are true and accurate in all respects at the date of this Agreement and will continue to be so on each day up to and including the day of Completion with reference to the facts and circumstances from time to time applying. The Vendors agree that the Purchaser may treat each of such Warranties as a condition of this Agreement.

…

7.6 The Vendors undertake, in relation to any Warranty which refers to the knowledge, information or belief of the Vendors, that it has made full enquiry into the subject matter of that Warranty and that it does not have the knowledge, information or belief that the subject matter of that Warranty may not be correct, complete or accurate.

…

14.5 This Agreement contains the entire agreement between the parties hereto relating to the transactions provided for herein and there are no other warranties, conditions or terms applicable thereto whether express or implied.”

26.  The Schedule to the SPA provided the following warranties given by the vendors:-

“1.4	(a) All information given by the Vendors, the Vendors’ Appointed Agent or the Vendors’ Accountants to the Purchaser, the Purchaser’s Solicitors or the Purchaser’s Accountant relating to the business, activities, affairs, or assets or liabilities of the Company [PA China] was, when given, and is now accurate and comprehensive in all respects.
	(b) There are no material facts or circumstances, in relation to the assets, business or financial condition of the Company, which have not been fully and fairly disclosed in writing to the Purchaser for the Purchaser’s solicitors, and which, if disclosed, might reasonably have been expected to affect the decision of the Purchaser to enter into this Agreement.
1.13 [PA China] has all permits, authorities, licenses and consents (whether granted by public or private authority) necessary to carry on its business effectively and without hindrance in the manner and in the places in which its business is now carried on with particular reference to the ownership of the Property and the business of leasing and letting parts thereof and there are no circumstances which might lead to the suspension or cancellation of any such permits, authorities, licenses or consents.
1.19 All information given or which may at any time before Completion be given by any of the Company, its directors, officers, accountants, solicitors or other advisers, to the Purchaser, their directors, officers, accountants, solicitors or other advisers or the Vendor is accurate in all material respects and there are no facts which have not been disclosed to the Purchaser which would make any such information misleading.
1.20 All information relating to the Company, its prospects and affairs known or which would on reasonable enquiry be known to any of the Company, its directors or the Vendor, which might affect the willingness of a prudent purchaser for value of the Shares to complete his purchase or the amount of the consideration which such purchaser would be prepared to pay for the Share has been disclosed to the Purchaser.”

C.  THE MANAGEMENT AGREEMENT

27.  Pursuant to Clause 6 of the SPA, PA China entered into a management agreement with PA E-Tech dated 1 February 2018 (“the MA”), under which PA E-Tech shall procure Paul Chan to provide advisory services to PA China for a management fee of HK$25,000 per month for a period of 12 months.

28.  Clause 7 of the MA further provides as follows:-

“7. INTELLECTUAL PROPERTY

The Manager and its Directors agree that all Relevant Intellectual Property (whether patentable or not) shall be the absolute property of the Company. The Manager and its Directors shall further:

(a) notify and disclose to the Company in writing full details of all Relevant Intellectual Property forthwith upon the production of the same, and promptly whenever requested by the Company and in any event upon the determination of the Appointment deliver up to the Company all correspondence and other documents, papers and records, and all copies thereof in his possession, custody and power relating to an Relevant Intellectual Property;

(b) assign to the Company or any Affiliated Company as the Company may designate, without additional compensation all rights (including patent, registered design and trade mark rights and copyrights) to such Relevant Intellectual Property worldwide;

(c) if required by the Company, apply or join with the Company or any Affiliated Company as the Company may direct in applying for letters, patents, registered design, trade mark, copyright and other protection or registration for such Relevant Intellectual Property at the expense of the Company or any Affiliated Company;

(d) sign and execute all documents and do all things as may in the opinion of the Board be necessary or desirable to carry out the foregoing and otherwise to protect and maintain all Relevant Intellectual Property;

(e) give testimony in support of its inventorship if required; and

(f) hold upon trust for the benefit of the Company any Relevant Intellectual Property to the extent the same may not be and until the same is vested absolutely in the Company and/or a Affiliated Company as the case may be…”

D.  POST-ACQUISITION

29.  It is common ground that Paul Chan had since February 2018 provided consultancy/advisory services to PA China pursuant to the terms of the MA without any dispute until around June 2018.

30.  On 27 June 2018, Ben Ng messaged Paul Chan and invited him to meet over dinner the next day. Paul Chan’s evidence is that in the dinner meeting on 28 June 2018, Ben Ng asked him to change the name of his other companies and asked for the administrator’s passwords for various domain names, including “polyasia.net” and “polyasia.com” (collectively “the Disputed Domain Names”). Paul Chan told Ben Ng that the changing of names needs to be discussed with Ms. Patty Wu, who is his wife and a director of the relevant companies. As to the administrator’s passwords, Paul Chan told Ben Ng that the staff of PA China already had the administration rights for doing what they wanted to do. Ben Ng did not give evidence on what transpired at this dinner meeting.

31.  That night, when Paul Chan discussed the matter with Patty Wu, she immediately opposed the changing of names of the other companies. Patty Wu also told Paul Chan that the Disputed Domain Names were necessary in operating the other companies and that there was no requirement under any agreements to stop other companies from using them.

32.  On 29 June 2018, Ben Ng in an email requested Paul Chan to pass the relevant passwords to Ryan Chan, the technical manager of Data World. It is not disputed that Paul Chan did not pass the administrator’s passwords for the Disputed Domain Name to Data World.

33.  On 25 October 2018, Paul Chan wrote to Ben Ng stating that the domain name of “polyasia.com.hk” is registered under PA China and the registration password is ready for collection. However, Paul Chan stated that the Disputed Domain Names were not registered under PA China. On the evidence, they were first registered under the sole proprietorship Poly Asia Systems and, according to Paul Chan, were subsequently registered to Paul Chan himself.

34.  On 26 October 2018, Ben Ng replied to Paul Chan alleging that the failure to provide the relevant passwords to the Disputed Domain Names is a breach of the SPA and/or the MA.

35.  By 18 January 2019, Data World has not paid PA E-Tech’s monthly management fee for a period of 4 months. A sum of HK$100,000 was then outstanding. At that time, Paul Chan still had the means to settle payments for PA China, and he therefore made payments to PA E‑Tech on behalf of PA China by bank transfer to settle the outstanding amount owed to PA E-Tech under the MA.

36.  Separately, it transpired that a “Poly Asia E-Technology” logo was registered by PA Holdings under Trade Mark Registration No. 300596484 (“the Trade Mark”). In a letter dated 23 January 2019, PA E-Tech stated that it would terminate PA China’s use of the Trade Mark upon cessation of the MA with effect from 1 February 2019.

37.  It is under the above background that the parties’ disputes arise.

E.  THE PLAINTIFFS’ CLAIM AND DEFENDANTS’ DEFENCE

38.  The gist of Plaintiffs’ primary complaint is the Defendants’ failure to transfer to PA China the Disputed Domain Names and the Trade Mark (collectively, “the IP Rights”).

39.  Data World’s primary claim is in misrepresentation either on the facts as pleaded by it or on the case as advanced by the Defendants (the precise details of its claims based on these 2 different scenarios are discussed below), where it is alleged to be entitled to:-

(1)  Rescind the SPA, together with the refund of the purchase price of HK$1,540,000, which is to be held on trust in favor of Data World;

(2)  An indemnity to indemnify Data World’s use of the IP Rights; and

(3)  Damages under the Misrepresentation Ordinance.

Data World’s claim for misrepresentation under the SPA as pleaded by Data World is discussed in Section F below, whereas Data World’s claim on the basis of the Defendants’ case is examined in Section G below.

40.  Alternatively, even if the SPA is not rescinded, the Plaintiffs allege that PA China is entitled to rescind the MA on the basis of misrepresentations, with the results that:-

(1)  The management fees in the sum of HK$300,000 should be refunded to PA China, which is to be held on trust; and

(2)  Damages under the Misrepresentation Ordinance.

Section H below deals with the Plaintiffs’ claim of misrepresentations under the MA.

41.  Further alternatively, the Plaintiffs’ further case is that on a proper construction of the subject matter of the SPA and the MA, the IP Rights are included in the sale and purchase and the failure to transfer to PA China the IP Rights constituted a breach of the SPA and/or the MA, thus entitling Data World and/or PA China to:-

(1)  Specific performance by requiring Paul Chan, PA E‑Tech and/or PA Holdings to transfer the IP Rights to PA China;

(2)  Further and/or alternatively, damages for breach of the SPA and/or the MA; and

(3)  An indemnity to indemnify Data World and/or PA China’s use of the IP Rights.

This is discussed in Section I below.

42.  In any event, regardless of the Court’s findings on the issues above, PA China further claims:-

(1)  A breach of duty on the part of Paul Chan in transferring the HK$100,000 to PA E-Tech in January 2019;

(2)  Recovery of the HK$100,000 from PA E-Tech on the basis of unjust enrichment; and

(3)  Damages/equitable compensation for breach of duty on the part of Paul Chan in transferring away the Disputed Domain Names.

These claims are examined in Sections J and K below.

43.  The Defendants denied that Paul Chan had made any false representations. Accordingly, Data World and/or PA China are not entitled to rescind the SPA or the MA, nor are Data World and/or PA China entitled to damages for misrepresentations.

44.  The Defendants further denied that the proper construction of the subject matter of the SPA and/or the MA extended to cover the IP Rights, and hence they were not in breach thereof. The Defendants also denied Paul Chan and/or PA E-Tech’s liability for the transfer of HK$100,000 and/or the Disputed Domain Names.

45.  The parties had helpfully prepared an agreed list of issues as early as the pre-trial review. However, in light of the clarifications made over the course of trial, it would be more convenient to deal with the issues in the order as mentioned in paragraphs 39 to 42 above.

F.  MISREPRESENTATIONS UNDER THE SPA

46.  At trial, I specifically asked Mr. Tom Ng and Mr. Ng confirmed that Data World is relying only on express misrepresentations that were allegedly made during the course of the negotiations prior to entering into the SPA. Data World is not running a case of any misrepresentation by silence or any unpleaded bases for alleging that the IP Rights should form part of the subject matter of the SPA. Mr. Ng further confirmed that Data World is not alleging any implied terms or any estoppel by reason of any other antecedent or subsequent conduct. The position of Mr. Ng is understandable given that the pleadings did not include these other claims.

47.  In the Statement of Claim, the pleaded express representations made by Paul Chan were as follows:-

(1)  Paul Chan would retire and the sale would include everything under the established brand-name “Poly Asia” (save and except the Pervasive Business) (“the Retirement Representation”); and

(2)  The sale would include all assets and business (save and except the Pervasive Business) of PA China, including the Disputed Domain Names and the Trade Mark (“the IP Rights Representation”).

48.  In closing submissions, Data World sought to rely on a third representation that the “Poly Asia” brand was well established in the IT service industry and on the internet and the early registration of the Disputed Domain Names enabled customers to have easy and quick access to the businesses under the “Poly Asia” brand (“the Brand Representation”). However, I do not see it as proper to allow the Brand Representation to be raised only in closing submissions and relied upon as an independent misrepresentation.

49.  First, in my view the Brand Representation has not been pleaded. It is not a pleaded misrepresentation in the Statement of Claim. Mr. Ng sought to refer me to the Plaintiff’s Answer to the Defendants’ Request for Further and Better Particulars of the Reply (“the Answer”), in which the Plaintiffs referred to Paul Chan having stated that the matters now relied upon as the Brand Representation. However, the relevant response in the Answer was in relation to a request in respect of the Retirement Representation. There was nothing in the Answer that suggested that the matters pleaded therein raised a completely independent Brand Representation.

50.  Second, as a result, the Defendants did not plead in response to the Brand Representation, and it is unfair, if not unjust, to require the Defendants to deal with the Brand Representation without a proper pleading basis.

51.  Third, as a result of the lack of pleadings, the Plaintiffs themselves have not pleaded how the Brand Representation was false and no evidence was led by either party in this regard. This court has not seen any evidence at all as to (i) whether the “Poly Asia” brand was well established in the IT service industry and on the internet, or (ii) whether the early registration of the Disputed Domain Names enabled customers to have easy and quick access to the businesses under the “Poly Asia” brand. In the absence of such evidence, I am not satisfied that the falsity or otherwise of the Brand Representation has been proved one way or another. In the absence of proper pleadings and evidence, the reliance on the Brand Representation is with respect a non-starter.

F1.  The general law of misrepresentation

52.  Before considering the other misrepresentations pleaded by Data World, it is helpful to set out some general principles in relation to the law on misrepresentation, which the parties do not dispute. A useful summary was given by DHCJ Alexander Stock SC in Joytex Development Limited v Super Homes Limited [2018] HKCFI 2286, at §77:-

“77. I consider it helpful to outline a few core principles …

(1) Generally, an actionable misrepresentation requires a false statement of past or present fact, as distinct from a statement of opinion or intention; though a statement of opinion/intention or as to the future may entail an implied statement of fact.

(2) Where there is a dispute as to the meaning conveyed, the court interprets the relevant words or conduct. The approach is objective, viewing the communication from the perspective of a reasonable person in the position of the representee. The test is whether: (a) the words or conduct in fact led the representee to believe the alleged false fact; and (b) it was reasonable for the representee to believe it from the words or conduct as he perceived them. In applying the test, the characteristics of the representee, including level of sophistication, are taken into account.

(3) Where an implied representation is alleged, the question is what a reasonable person would have inferred was being impliedly represented by the representor’s words and conduct in their context.

(4) The statement must have the character of one upon which the representee was intended and entitled to rely.

(5) The representee must have in fact relied on the statement; though this can sometimes be inferred. The representation need not be the only or main cause of the decision to contract. It is generally sufficient that it be a cause (in other words, a material inducement).”

F2.  The Retirement Representation

53.  I find the Plaintiffs’ case based on the Retirement Representation problematic. The Retirement Representation consists of 2 components, namely (i) Paul Chan would retire and (ii) the sale of PA China would include everything under the established brand-name “Poly Asia”.

54.  As to Paul Chan’s retirement, I am of the view that this representation, even if made, does not assist Data World. First, Paul Chan’s retirement clearly does not lead to a reasonable understanding that the sale would include everything under the “Poly Asia” brand-name. Both Paul Chan and Ben Ng were sophisticated businessmen. Apart from being a director of Data World, Ben Ng was also a director of a listed company. The representation that Paul Chan is to retire could not have reasonably led a representee with Ben Ng’s experience to believe that the sale of PA China (i.e. that company alone) would include everything under the “Poly Asia” brand. It just does not follow.

55.  Second, I am not satisfied that the representation that Paul Chan would retire was intended to and did induce Data World to enter into the SPA. As a matter of fact, Ben Ng admitted that he did not rely on Paul Chan’s retirement in deciding whether to acquire PA China.

56.  As to the 2^nd component of the Retirement Representation, namely that there was an express representation that the sale would include everything under the established brand-name “Poly Asia”, I am not satisfied that the evidence shows that such a representation has in fact been made by Paul Chan.

57.  First, it is Ben Ng’s evidence that by the time the SPA was executed, he was aware of the fact that Paul Chan had a number of companies under the PA Group. He was also aware that Data World was contracting to acquire only PA China. Companies such as PA E-Tech or PA Holdings were not specifically included in the SPA. This clearly was known to Ben Ng as Data World contracted with PA E-Tech under the MA as an ancillary agreement to the SPA. It must have been clear to the parties that the SPA does not include everything under the “Poly Asia” brand. This is inconsistent with such a representation having been made by Paul Chan.

58.  Second, the October Business Outline titled specifically as “Microsoft Gold Partner” made it quite clear that the sale concerned only the Microsoft ERP Business. The 31 Oct Minutes was also clear as to the scope of the sale where it was recorded that the sale of the whole company is “Poly-Asia with only Microsoft Business and Operation”. Similarly, the Drafting Note also refer specifically to the Microsoft ERP Business.

59.  Third, the SPA itself is also quite apparent that the subject matter of the sale is the Microsoft ERP Business. In my view, the parties had quite clearly demonstrated that the subject matter of the SPA is the Microsoft ERP Business, effected through the sale of the shares of PA China. It would be surprising if the sale were understood to include anything other than the assets of PA China and the Microsoft ERP Business, experience businessmen such as Ben Ng and Paul Chan would not have stated them clearly in the documentations.

60.  Fourth, I agree with Ms. Vivian Chan, counsel for the Defendants, that the way Data World frames the Retirement Representation now is unnatural. Despite the clear wordings used throughout the negotiations and in the SPA pointing to the subject matter being the Microsoft ERP Business, the present allegation of a representation that the sale included everything other than the Pervasive Business appears to be arbitrary and framed to include the IP Rights.

61.  For all of the reasons above, I find, on the balance of probabilities, the Retirement Representation (at least the second component as referred to above) was not made by Paul Chan.

F3.  The IP Rights Representation

62.  One of the main factual disputes is whether Paul Chan expressly made the IP Rights Representation. On the evidence before the Court, I am not satisfied that Data World has proved this on the balance of probabilities.

63.  Ben Ng’s evidence is that Data World’s primary concern in acquiring PA China was to obtain its brand-name and the IP Rights. He went so far as to say that Data World was not too concerned with the business performance of PA China. This appears to me to be inconsistent with what was discussed in the 21 Feb Meeting (see paragraph 14(2) above), where Ben Ng admitted having told Paul Chan his primary intention to acquire an existing Microsoft ERP gold partner. If the acquisition of the brand-name and the IP Rights were Data World’s foremost intention, it is inherently unlikely that Data World did not insist that the brand-name and the IP Rights be expressly included in the SPA. There is simply no good answer to this.

64.  Data World referred to Clause 7 of the MA as evidence that the IP Rights Representation was made. Clause 7 of the MA contained a reference to the term “Relevant Intellectual Property”. Data World submitted that had there not been such representations, it is unlikely that Clause 7 of the MA would impose an obligation on Paul Chan and Eugenia Chan to procure the transfer of “Relevant Intellectual Property” to PA China. For otherwise, Clause 7 of the MA would serve no useful purpose.

65.  I reject Data World’s submissions in this regard. The MA is a service agreement between PA China and PA E-Tech. Paul Chan and Eugenia Chan (i.e. the vendors in the SPA) were not even parties to the MA. The purpose of the MA is not for Paul Chan and Eugenia Chan to transfer the IP Rights as part of the subject matter under the SPA. I therefore agree with Ms. Chan that the purpose of the MA is to assist in the transition of PA China after it was acquired by Data World, rather than to transfer any assets.

66.  Further and more importantly, Clause 7 of the MA in my view refers to “Relevant Intellectual Property” (although not specifically defined in the MA) that was created during the course of the advisory services under the MA. Clause 7 of the MA thus read:-

“The Manager and its Directors agree that all Relevant Intellectual Property (whether patentable or not) shall be the absolute property of the Company. The Manager and its Directors shall further:

(a) notify and disclose to the Company in writing full details of all Relevant Intellectual Property forthwith upon the production of the same, and promptly whenever requested by the Company and in any event upon the determination of the Appointment deliver up to the Company all correspondence and other documents, papers and records, and all copies thereof in his possession, custody and power relating to any Relevant Intellectual Property”

67.  In the circumstances, I find that Clause 7 of the MA does not refer to the IP Rights and does not assist the Plaintiffs at all.

68.  The reason given by Ben Ng as to why, despite the alleged IP Rights Representations and the importance allegedly attached to them by Data World, the IP Rights were not expressly included in the SPA was that he trusted Paul Chan. However, there is nothing in the evidence to support Ben Ng’s trust in Paul Chan when they were not close acquaintances, but negotiating a commercial deal between two experience businessmen.

69.  On the other hand, there are ample evidence to show that Data World’s intention was to acquire the Microsoft ERP Business with its gold partnership status:-

(1)  The intention to acquire an existing Microsoft ERP gold partner was mentioned by Ben Ng as early as in the 21 Feb Meeting;

(2)  The October Business Outline, the 31 Oct Minutes, the Note to Drafting, and the SPA all specifically refer to the acquisition of the Microsoft ERP Business;

(3)  In evidence, Ben Ng had admitted that the gold partnership status carried a high value. Ben Ng also knew of the benefits that come from the gold partnership status including discount and referral of new customers from Microsoft, and the instilling of confidence in its customers;

(4)  In fact, the valuation of PA China as shown in the October Business Outline appears to have been calculated (at least by Paul Chan) on the basis of financial figures from the Microsoft ERP Business. There is nothing on the evidence that is indicative of the sale price to have taken into account the IP Rights or the brand-name at all;

(5)  I also agree with Ms. Chan that the evidence does not show that PA China was performing poorly, such that Data World only valued the IP Rights in the acquisition. Between 2014 to 2017, the gross profit each year ranges from about HK$3.38 to HK$4.36 million with a gross profit margin of 58% to 63%. Even according to Ben Ng, this profit margin was not too bad in the industry. Although the evidence does show a loss of HK$100,037 for 2016/17, this has included directors’ remuneration of HK$737,600, which was drawn by Paul Chan and Patty Wu;

(6)  During the drafting of the SPA, Ben Ng has specifically requested to include in the SPA the customer list of PA China’s Microsoft ERP Business. This clearly shows that Data World was principally concerned with it. Had the IP Rights been their primary concern, there was no reason why Data World did not request a list of intellectual property rights, but instead a list of clients in the Microsoft ERP Business.

70.  Importantly, during cross-examination, Ben Ng stated that his understanding that the SPA included the IP Rights was merely his own assumption, and that the IP Rights ought to be included as a matter that goes without saying. I am not required to determine whether this can be implied into the SPA on this basis as this was never Data World’s case. Ben Ng’s admitted assumptions cast substantial doubts as to whether Paul Chan in fact made the IP rights Representation.

71.  On 2 January 2019, shortly prior to the commencement of these proceedings, Ben Ng messaged Paul Chan as follows:-

“…在買PA前，我記得跟你講過你不如留下49% 股份，繼續由你經營PA。亦清楚記得你回答說希望完全賣掉，了無牽掛地退休，享受人生。”

“既然完全賣掉了PA，現在又何必多生枝節，在可以退休享受時，惹來一身官非煩惱，亦令自己一生的信譽破產？”

72.  Even Ben Ng did not refer to any express IP Rights Representation as a basis for demanding Paul Chan to transfer the IP Rights.

F4.  Subsequent conduct

73.  Against the above evidence, Mr. Ng urged the Court to also consider the following subsequent conduct of Paul Chan, which, Mr. Ng submitted, tend to show that the various representations had in fact been made by Paul Chan:-

(1)  PA China had been using the IP Rights for a substantial period (from February to October 2018) after the SPA without objection;

(2)  At least from late-June 2018, Paul Chan knew that PA China intended to appropriate the IP Rights, but he chose not to object until 25 October 2018;

(3)  Despite the suggestions at trial that PA China could have used some alternative remedial measures to replace the importance of the IP Rights, at no time did Paul Chan inform Ben Ng and Lawrence Mak of these alleged remedial measures; and

(4)  Paul Chan testified that he did not have the intention to discontinue PA China’s use of the IP Rights after 1 February 2019 at the time when the SPA was executed.

74.  In his closing submissions, Mr. Ng advanced these subsequent conduct as forensic tools for the limited purpose of testing the parties’ case on whether various representations were made by Paul Chan. That is to say, Data World is not relying on any subsequent conduct in interpreting the SPA or to find some sort of estoppel. However, I consider the subsequent conduct referred to by Mr. Ng ambiguous at most and is not suggestive of Paul Chan having made the various representations as alleged, particularly in light of the matters discussed in section F3 above.

75.  After the execution of the SPA, I find that there has been a transitional period within which the parties were attempting to effect a smooth transition of the business of PA China to Data World. The MA, no doubt, was effected for this purpose. I do not consider PA China’s continuing use of the IP Rights in the transitional period necessarily meant that Paul Chan had made the IP Rights Representation or other similar representations.

76.  Furthermore, I do not consider it relevant the timing of Paul Chan’s objection having been made in October 2018 rather than earlier. The timing of his objection, in my view, is neither here nor there in terms of whether Paul Chan made the IP Rights Representation. I do not see how the earlier or later objection by Paul Chan affects the likelihood of him having made the IP Rights Representation. Mr. Ng submitted that the evidence suggests that Paul Chan and Patty Wu waited until late-October 2018 to object because they took time to deliberately give a false impression that the Disputed Domain Names had always been owned by PA E-Tech (being a non-party to the SPA), rather than Paul Chan himself. This was done deliberately to lead Data World to believe that Paul Chan had no power to transfer the Disputed Domain Names. I do not accept Mr. Ng’s submissions. I do not think it is fair to draw this inference of bad faith from the evidence when the matter, which clearly needs to be, but was not, put to Paul Chan under cross-examination.

77.  Equally, I do not regard as relevant the failure of Paul Chan to suggest alternative measures to replace the IP Rights points one way or another as to whether he made the IP Rights Representation. Instead, Mr. Ng submitted that the Court may thus infer from this that Paul Chan knew that the IP Rights were irreplaceable. I do not accept that this is an inference that can be drawn on the evidence as there is little evidence in this regard. This no doubt stems from the fact that the importance of the IP Rights was not an issue arising from the parties’ pleaded case. But even if this Court accepts that such an inference could be drawn, it has no bearing on whether it is more likely or not that Paul Chan made the IP Rights Representation.

78.  Finally, I also do not regard the parties’ post-contractual intention as to the duration for PA China to continue to use the IP Rights to be of any relevance to whether Paul Chan had made the relevant representations.

79.  Having considered the totality of the evidence, I accept Paul Chan’s evidence and find, as a matter of fact, that the IP Rights were never discussed during the negotiations prior to the SPA. Further, I prefer the evidence of Paul Chan and reject the evidence of Ben Ng and Lawrence Mak insofar as they are inconsistent with Paul Chan’s. Accordingly, I find, on the balance of probabilities, that Data World had failed to prove that Paul Chan had expressly made the Retirement Representation and/or the IP Rights Representation. Accordingly, Data World’s own pleaded case on express misrepresentations under the SPA must fail.

G.  MISREPRESENTATION / BREACH OF WARRANTIES UNDER THE DEFENDANT’S CASE

80.  Mr. Ng’s next point is that even if I find for the Defendants on the Defendants’ factual case, namely that the parties had never discussed the sale and purchase of the IP Rights, Warranties 1.4(b), 1.13, 1.19, and 1.20 of the SPA (collectively, “the Warranties”) were in and of themselves false, giving rise to misrepresentations and breaches. These misrepresentations or breaches were not specifically pleaded by Data World in its Statement of Claim. Mr. Ng submitted that the court is nevertheless entitled, on the principles as stated in Poon Hau Kei v Hsin Chong Construction Co Ltd Taylor Woodrow International Ltd Joint Venture (2004) 7 HKCFAR 148, to decide in favor of a party based on a scenario that he has not pleaded but his opponent has. While it is true that the Defendants pleaded a case that the IP Rights were never discussed in negotiations (and hence no express representations were made), the Defendants never pleaded a case that there had been breaches of the Warranties as a result.

81.  I do not agree with Mr. Ng that the principles in Poon Hau Kei is applicable in the present case. To begin, it is pertinent to examine closely the principles as stated in Poon Hau Kei, where Bokhary PJ, said:-

“18. In each of those two cases [in which the court rejected the plaintiff’s unpleaded case], the plaintiff sought to succeed on a scenario not pleaded by either side and outside the defendant’s contemplation. That is the opposite of the situation in the present case. The respondent pleaded the light trough scenario as one in which the accident ‘was caused solely or contributed to by the negligence of” the appellant. (Emphasis added)

19. Provided that it does so in a fair manner, a court is entitled to decide in favour of a party on the basis of a scenario that he has not pleaded but his opponent has pleaded. This is a proposition at which I arrive on principle. It is also a proposition supported by highly persuasive authority. In John G Stein & Co Ltd v O’Hanlon [1965] AC 890 at p.910A, Lord Guest said: ‘I failed to see how [the defenders] can have been in any way prejudiced when the facts upon which liability was established are those averred in the defences and spoken to by their witnesses in evidence.’…”

82.  First, it must be obvious that if liability is to be found on the Poon Hau Kei principles, the opponent’s pleaded case must be capable of allowing the Court to find liability. In other words, the facts upon which liability is to be established are those averred in the opponent’s pleadings. Second, the principle is only to be applied provided that it does so in a fair manner.

83.  As to fairness, Bokhary PJ further explained in Poon Hau Kei as follows:-

“21. Was there any unfairness in the process by which the trial judge reached his findings? In Bank of America National Trusts and Savings Associations v Chai Yen [1980] 1 WLR 350 at p.353D, Lord Lane, delivering the advice of the Privy Council, said that ‘the essence of any rule of procedure must be fairness’. The same is true of any rule of practice.

22. In the present case, the respondent pleaded the light trough scenario as one in which the appellant caused or contributed to the accident. It adduced evidence to prove – and succeeded in proving – that the appellant had been standing on the light trough. It cross-examined him to the effect that he would be at fault if he had done so. And it addressed the trial judge on the issue of contributory negligence in the light trough scenario. In short, the respondent pleaded and argued that the appellant caused or contributed to the accident in the light trough scenario.

23. Thus the respondent did not opt at the trial for the more ambitious but perhaps less promising course of confining itself to a contention that the light trough scenario left it blameless, whether by reason of an absence of foreseeability or otherwise. If the respondent had opted at the trial for that course, the appellant might have adduced evidence to answer the contention, and the state of the evidence might then have been materially more favourable to the appellant…

24. On the question of fairness, it is pertinent to note that the trial judge said that the light trough scenario had been fully canvassed in evidence and submissions by the parties [and that there was] no prejudice to anyone…”

84.  It is clear that in Poon Hau Kei the respondent conducted its own case on the basis that they might be liable under the light trough scenario rather than relying on the case that such scenario would leave them blameless. The respondents had fully canvassed the relevant evidence and made submissions thereon. In effect, the factual case that was run by the respondent is sufficient to find liability against it, in circumstances that such factual case was entirely within the contemplation of the respondents.

85.  The present case is clearly different. I do not accept that the Defendants’ pleaded case that the IP Rights were not discussed in the negotiations would entitle Data World to succeed on misrepresentations and/or breaches under the Warranties, which it has not itself pleaded. There are simply no other pleaded facts in the Defendants’ pleadings or the way in which the Defendants ran their case at trial that could give rise to liabilities under the Warranties. It seems to me clear that the breach of Warranties as now alleged by the Plaintiffs was never within the contemplation of the Defendants.

86.  The fact that the parties were silent on the IP Rights might have been one of the facts that needs to be proved by Data World, but that is not the only fact required to be proved before Data World can succeed on the Warranties. There are other relevant matters which has not been canvassed because Data World had not pleaded material facts enabling it to succeed. The unfairness to allow such unpleaded case to be advanced is manifest. Had the Defendant been alerted to the claims under the Warranties, other evidence would no doubt have been canvassed:-

(1)  Under warranty 1.4(b), there is no evidence before the Court that the IP Rights (which does not belong to PA China) “might reasonably have been expected to affect the decision of the Purchaser to enter into the [SPA]”, particularly in light of the finding that the primary subject matter of the SPA is the acquisition of the Microsoft ERP Business, where the IP Rights might or might not be crucial to the Microsoft ERP Business;

(2)  Similarly, under warranty 1.20, there is again no evidence that the IP rights “might affect the willingness of a prudent purchaser for value of the Shares to be complete his purchase or the amount of the consideration which such purchaser would be prepared to pay” when the primary acquisition is for the Microsoft ERP Business;

(3)  Under warranty 1.13, it provides that PA China should have all permits, authorities, licenses and consents necessary to carry on its business effectively. There is again unsatisfactory evidence as to whether the IP Rights are necessary for the business to be carried on effectively. It appears to me on the evidence, the only domain name necessary to carry on the business is the Microsoft domain name “polyasia.onmicrosoft.com” (which was transferred to Data World) for use to identify and represent itself as a unique partner to Microsoft servers and Microsoft portal in the Microsoft environment.

(4)  Under warranty 1.19, there is no evidence as to what information was allegedly disclosed and how the failure to disclose the IP Rights make such information misleading.

87.  The principle in Poon Hau Kei is not, in my view, designed to allow parties to freely run unpleaded case based on some incomplete facts alleged by the opponent. Where additional facts are required to entitle a plaintiff to succeed, those facts clearly must be pleaded. The lack of evidence over many relevant matters in the present case is a stark manifestation of how undesirable and unfair if Data World is to be allowed to run its unpleaded case based on breach of the Warranties. In any event, on the current evidence, I am not satisfied that Data World had proved any breach of the Warranties on the part of the Defendants.

H.  MISREPRESENTATION UNDER THE MA

88.  The Plaintiffs’ claim to rescind the MA is based on the same misrepresentations under the SPA. Mr. Ng submitted that as a matter of law if a misrepresentation induces a transaction to which a second transaction is closely related, it may be possible to rescind the second transaction: The Law of Recission (3^rd ed.), at §4.121. As the MA was entered into pursuant to Clause 6 of the SPA, any misrepresentation that vitiates the SPA should also similarly vitiate the validity of the MA. However, in light of the finding that there was no misrepresentation under the SPA, I also dismiss the Plaintiffs’ claim in misrepresentation under the MA.

I.  PROPER CONSTRUCTION OF THE SUBJECT MATTER OF THE SPA AND MA

89.  The Plaintiffs also alleged that on a proper construction of the subject matter of the SPA and MA, the IP Rights are included in the sale and purchase, such that the failure to transfer the IP Rights to PA China was a breach of the SPA and the MA.

90.  The SPA was entirely silent on the IP Rights. The MA referred to the “Relevant Intellectual Property”, which as I have found above is not a reference to the IP Rights. Instead, the wordings of the SPA expressly refer to the sale and purchase of the shares in PA China with its Microsoft ERP Business. Other than the various alleged representations by Paul Chan, the Plaintiffs are not relying on any other factual circumstances to be taken into account in interpreting the SPA and/or the MA. This is not surprising since, again, these other matters, if any, were not part of the Plaintiffs’ pleaded case.

91.  Instead, the interpretation point taken by the Plaintiffs is based on the various alleged representations made by Paul Chan. Mr. Ng submitted that the evidence shows that there had been pre-contractual representations regarding the inclusion of the IP Rights in the sale of PA China (i.e. the Retirement Representation and the IP Rights Representation). Accordingly, once the court finds that the representations were made, Mr. Ng invited the court to conclude that the representations were incorporated as terms of the SPA. Mr. Ng further submitted that even if the SPA and the MA did not refer to the IP Rights, if the relevant context and background led the court to the conclusion that something had gone wrong with the language of the SPA and the MA, mistakes in drafting can be corrected as a matter of construction: Fok Chun Yue Benjamin v Fok Chun Wan Ian [2015] 2 HKLRD 212, at §42.

92.  As I have found that Paul Chan did not make the representations as alleged by the Plaintiffs, I do not accept that they form part of the background and circumstances in construing the subject matter of the SPA and/or the MA.

93.  On a proper construction of the SPA, I am of the view that the subject matter of the sale and purchase was the Microsoft ERP Business effected through the transfer of shares of PA China. There is nothing in the SPA and/or the MA to indicate the sale included the IP Rights, which were assets that did not belong to PA China. Accordingly, I find that the failure to transfer the IP Rights by any of the Defendants did not constitute breaches of the terms of the SPA and/or the MA.

J.  TRANSFER OF HK$100,000 TO PA E-TECH

94.  PA China further claims against Paul Chan personally for breach of duty in transferring the sum of HK$100,000 to PA E-Tech on 21 January 2019. PA China’s case is that Paul Chan did not have any authority to make the transfer of HK$100,000 to PA E-Tech as there was no board resolution authorizing the transfer.

95.  There is no dispute that Paul Chan remained as a director of PA China when he acted as advisor to PA China after the sale. He was only removed as a director in about February 2019. During his time as a director of PA China, he was an authorized signatory of PA China’s bank account and continued to have access to PA China’s online banking account with Hang Seng Bank.

96.  According to the evidence of Paul Chan, at the time when he made the transfer to PA E-Tech, he had authority to settle payments on before of PA China. In the past, he had settled various payments on behalf of PA China, including payments to Microsoft and payroll payments by signing cheques or electronic bank transfer. This part of the evidence was not seriously challenged by Data World. Despite there being no written broad resolution authorizing Paul Chan to make payments on behalf of PA China, it is clear that Paul Chan was authorized to do so when he was a director of PA China even after the SPA. His authority to make payments on behalf of PA China was of course subject to those payments being properly incurred in the course of PA China’s business. There is no evidence that his authority to make payments on behalf of PA China was revoked before 21 January 2019.

97.  Apart from the complaint that the Defendants had failed and/or refused to transfer to PA China the IP Rights and hence were in breach of the MA disentitling PA E-Tech to payment under the MA, there is no allegation that Paul Chan and/or PA E-Tech had in any other way breached the SPA or the MA. In light of my finding that the IP Rights were not part of the subject matter of the SPA or the MA, it appears to me that PA China was in fact obliged to pay PA E-Tech the sum of HK$100,000 on 21 January 2019.

98.  In the circumstances, as the payment was made for a sum of money that PA China was legally obliged to pay in the course of its business, I find that Paul Chan did have the authority to make that payment on 21 January 2019 and there was no breach of duty on his part.

99.  It also follows that PA China is not entitled to claim against PA E-Tech for unjust enrichment in the sum of HK$100,000 as the payment was not made in breach of duty by Paul Chan. That payment was in fact made in accordance with the contractual provisions contained in the MA, which PA E-Tech was entitled to received.

K.  TRANSFER OF DISPUTED DOMAIN NAMES

100.  As I have found that the Disputed Domain Names were not registered with PA China (i.e. not part of the asset of PA China), nor were the Disputed Domain Names part of the subject matter of the SPA and/or the MA, there was no breach of duty on the part of Paul Chan in dealing with assets that did not belong to PA China.

L.  DISPOSITION

101.  For the forgoing reasons, I dismiss all of the Plaintiffs’ claims against the Defendants. However, for the avoidance of doubt, nothing in this judgment should be construed as disentitling PA China from using the phrase “Poly Asia”, where appropriate, in the course of its business. This was not an issue raised in these proceedings and the court makes no findings in this regard. I note that the domain names “polyasia.com.hk” and “polyasia.onmicrosoft.com” were assets of PA China, which, it seems to me, PA China would be entitled to continue to use, along with its name, in the course of its business.

102.  In light of my dismissal of all of the Plaintiffs’ claims, issues concerning the Plaintiffs’ remedies (i.e. rescission, indemnity, damages, and specific performance) do not arise.

103.  I also make a costs order nisi that costs of these proceedings be paid by the Plaintiffs to the Defendants (including any costs reserved), with certificate for one counsel, to be taxed if not agreed.

104.  Lastly, it remains for me to reiterate the helpful assistance rendered to this court by Mr. Tom Ng, Mr. Billy Liu, Ms. Vivian Chan, and Ms. Teresa Yu.