GHAZI FAIDI v. QANTEX CAPITAL MARKETS LTD AND OTHERS

HCA 272/2018 & HCA 486/2018
(Consolidated)

[2023] HKCFI 2184

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 272 OF 2018

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BETWEEN

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 486 OF 2018

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BETWEEN

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(Consolidated by Order of Master Queenie Lau dated 2 October 2018)

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D E C I S I O N

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A. INTRODUCTION

1.  This is the hearing of the Plaintiff’s summons filed on 14 December 2022 (“P’s Summons”) for:

(1) summary judgment for part of the Plaintiff’s claims in this action, in the sum of US$750,000 plus interest (“Bonus Claim”); and

(2) striking out the 1^st Defendant’s counterclaim[1] for the sum of US$250,000 (“Bonus Counterclaim”) on the grounds that (i) it is scandalous, frivolous and vexatious; and (ii) may prejudice, embarrass or delay the fair trial of the action; and/or (iii) is otherwise an abuse of process of the Court.

2.  The Plaintiff was an employee of the 1^st Defendant (“the Company”), a licensed financial institution engaged in the business of stock brokerage.

3.  The 2^nd Defendant (“D2”) and the 3^rd Defendant (“D3”) are brothers and are together the majority shareholders, directors and responsible officers of the Company.

4.  The two actions relate to the alleged entitlements of the Plaintiff under the second employment contract dated 3 April 2014 (“Employment Agreement”) which the Plaintiff (as employee) entered into with the Company (as employer). In the Employment Agreement, D2 and D3 signed as guarantors in relation to the terms set out in Schedule 2 thereof.

5.  In this action, the Plaintiff claims, inter alia, for the payment of liquidated damages of US$1,000,000 less the part-payment of US$250,000 allegedly made pursuant to Schedule 2 of the Employment Agreement, and payment of his share of the legal costs in the sum of HK$296,515 incurred in relation to a share purchase transaction that fell through.

6.  By a Consolidated Defence and Counterclaim filed on 12 February 2019 (“D&CC”), the Defendants deny the Plaintiff’s claims. The Company further counterclaims for (inter alia) the return of legal fees and the sum of US$250,000 paid to the Plaintiff allegedly by mistake, and 3 months’ wages in lieu of notice under the Employment Agreement.

B. FACTUAL BACKGROUND

7.  The relevant background facts are set out in paragraphs 9 to 22 of the O14A Decision (defined below). The pertinent aspects relevant to P’s Summons are repeated below for ease of reference.

8.  By an employment agreement dated 13 July 2011, the Plaintiff commenced employment with the Company for a fixed term of 3 years (“Initial Employment Agreement”).

9.  Shortly before the Initial Employment Agreement expired, the Plaintiff entered into a new employment agreement dated 3 April 2014 (i.e. the Employment Agreement defined above), for an initial term of 39 months, to be continued indefinitely upon the expiry of the initial term until terminated.

10.  The Employment Agreement contains terms that provide the Plaintiff with incentive in the form of a sign-on bonus (“Sign-On Bonus”) for agreeing to continue his employment with the Company. In particular, Clause 7.1 provides as follows:

“…. You will receive a one off payment for re-signing your employment contract. The details of this payment are outlined in Schedule 2. You agree to repay to the Company on a pro-rata basis any payment made under Schedule 2 if you resign or are summarily dismissed within 39 months of the Commencement Date.” (Emphases added)

11.  Schedule 2 of the Employment Agreement (“Schedule 2”) contains the following “details of … payment” referred to in Clause 7.1 in the form of two options at the election of the Plaintiff:

“You will be entitled to receive a one off (sic) payment for the re-signing of your employment contract. The payment will be at your choice of the following alternatives.

1) A cash payment of US$750,000

2) The Company agrees to:

a. Procure the transfer of 1,231,000 ordinary shares (the “Shares”)(representing a total of 5% of the company’s outstanding ordinary shares) to you from existing shareholders within. [days] of the execution of this Employment Contract (the Transfer”);

b. Pay any stamp duty that may be payable in connection with the transfer referred to in clause (2)(a) of this Schedule 2;

c. Procure on your behalf a Deed of Adherence to any existing shareholders’ agreement to which any other shareholders are a party at the time of the Transfer;

d. Between 3 October 2014 (being for the avoidance of doubt, a day 6 calendar months after the signing of this Employment Contract), up to and including the end of the Term (as defined in clause 2.1 of the Employment Contract), within 3 months of receiving written notice of exercise under this clause, transfer to you the sum of. US$ 0.8124/share in consideration for the transfer to the Company (or its agent, nominee or assig) of the Shares (in any amount of shares that you elect, provided the maximum amount payable for the total of the Shares does not exceed US$1,000,000);

e. If any relevant transaction occurs by which the shareholders of the Company (including yourself, whether by way of tag-along or drag-along rights acquired as a result of signing the shareholders’ agreement pursuant to clause 2(c) of this Schedule 2) agrees (sic) to surrender, transfer, or otherwise beneficially assign their interests in the shares of the Company to a third-party (the Third-Party Buyout), you agree that:

i. To the extent the right specified in clause 2 d) of this Schedule 2 remains unexercised at the date of completion of Third-Party Buyout, such rights in clause 2(d) will expire and be replaced by the rights set out in clause 2(c)(iii) below; and

ii. any up-front cash payment for the Third-Party Buyout will be set off against any remedy sought under clause 2(f) of this Schedule 2.

And the Company further agrees that:

iii. At any point during the period between the completion of the Third-Party Buyout, and the end of the Term (as specified in clause 2.1 of the Employment Contract), you may elect to forgo any future earn-out rights which you may acquire as part of the Third-Party Buyout in return for a cash payment equal to the formula in sub paragraph (1) below, which the Company agrees to make or procure within 3 months of being so notified;

1. CASH PAYMENT = US$ 1,000,000 less any consideration received as part of the Third -Party Buyout less any payment received pursuant to clause 2(d) above less any earnout commission already received;

2. For the avoidance of doubt, and in the event of any dispute, it is the parties’ express intention that the formula in the preceding paragraph preserves a right by you to receive a total sign-on bonus of US$1,000,000 within the term, but to properly account for any consideration (whether upfront payments or earn out commissions) that may be received as a result of any Third-Party Buyout.

AND Simon Gray and Matthew Gray, being a party only to this Schedule 2, jointly and severally agreed to procure the making of such cash payment referred to clause 2(e)(iii) above and further jointly and severally personally guarantee such payment should the Company fail to make such payment within 14 days.” (Emphases added)

12.  In July 2014, D2 and D3 entered into an agreement in relation to the transfer of the Company’s shares to the Plaintiff pursuant to Clauses 2(a)-(c) of Schedule 2 (“Shareholders Agreement”). On 17 October 2014, D3 transferred 5% of the shares in the Company (“Shares”) to the Plaintiff.

13.  On 24 December 2014, the Plaintiff, D2 and D3 entered into a share purchase agreement (“SPA”) with CBD Investment (Cayman) Corporation (“CBD”) pursuant to which CBD agreed to purchase, and the Plaintiff, D2 and D3 agreed to sell 85% of the shares of the Company to CBD (“CBD Transaction”).

14.  Clause 4.1(c) of the SPA provides that it is a condition precedent for the CBD Transaction that the Shareholders Agreement has been terminated on terms satisfactory to CBD acting reasonably (“SPA Condition Precedent”).

15.  Pursuant to the SPA Conditions Precedent, on 4 December 2015, the Plaintiff, D2 and D3 entered into a Deed of Termination (“Deed of Termination”), under which the Shareholders Agreement would be terminated. Clauses 2 and 5 of the Deed of Termination provide as follows:

“2. PREVIOUS AGREEMENTS

With effect from the date of the Deed, all previous agreements between the Parties relating to their interests, rights, and obligation in respect of the Company, including the Shareholders Agreement, shall be terminated and will have no further effect.

5. ENTIRE AGREEMENT

This deed constitutes the whole agreement between the parties relating to the subject matter herein (no party having relied on any representations made by any other Party which is not a term of this Deed) and no future variation of any term of the Deed shall be effective unless made in writing and signed by each of the Parties.”

16.  The parties to this consolidated action and CBD entered into a Supplemental Agreement dated 4 December 2015 (“Supplemental Agreement”), pursuant to which certain clauses of the SPA including on the timing for the payment of the ”Initial Cash Consideration” were amended from payment “on Completion” to “payable as soon as practicable after Completion, but… no later than [30] March 2016”.

17.  On 28 January 2016, the Plaintiff transferred the Shares to CBD. D3 also transferred his shares in the Company to CBD, whereupon CBD became the majority shareholder of the Company.

18.  However, CBD failed to pay the consideration under the SPA and the Supplemental Agreement whether by the extended payment deadline or at all. This led to the execution of an unwind deed dated 20 February 2017 (“Unwind Deed”) between D2, D3 and CBD. The Plaintiff did not sign the Unwind Deed at the time.

19.  On 10 February 2017, the Plaintiff served a notice on the Company (“Notice”), with copies sent to D2 and D3 as guarantors, stating as follows-

“I refer to my contract of employment with [the Company] dated 3 April 2014. I am writing to notify you under Clause 2(d) and 2(e)(iii) of Schedule 2 of my decision to elect to receive a cash payment calculated in accordance with sub-clause 1. Based on that formula, the payment is USD1,000,000 (US Dollar one million). I look forward to receiving payment within three (3) months of the date of this notification in accordance with Schedule 2”. (Emphases added)

20.  On 7 July 2017, the Company made a payment of US$250,000 in two separate tranches to the Plaintiff. According to the Plaintiff, despite his demands, the Defendants have not paid him the balance of the Sign-On Bonus in the amount of US$750,000.

21.  On 2 July 2017, the initial 39-month term of the Employment Contract was completed. On 3 October 2017, the Plaintiff’s employment came to an end.

C. PLAINTIFF’S APPLICATION UNDER ORDER 14A RHC

22.  By summons dated 16 July 2020, the Plaintiff applied to have 3 preliminary questions of law or construction to be finally determined, and judgment entered in its favour for the sum of US$750,000 plus interest (i.e. the Bonus Claim), pursuant to Order 14A rule 1 of the Rules of the High Court (“RHC”) and the inherent jurisdiction of the court (“O14A Application”). The 3 preliminary questions of law or construction are as follows:

The First Question

Whether, on the proper construction of the Deed of Termination, clauses 2 and 5 thereof have the effect of superseding the Plaintiff’s rights and claims under clause 7.1 and Schedule 2 of the Employment Agreement.

The Plaintiff proposed that the answer should be “no”.

The Second Question

Whether Notice was a valid notice under clause 2(d) of Schedule 2 of the Employment Agreement.

The Plaintiff proposed that the answer should be “yes”.

The Third Question

Whether the Notice was a valid notice under clause 2(e)(iii) of Schedule 2 of the Employment Agreement.

The Plaintiff proposed that the answer should be “yes”.

23.  The substantive hearing of the O14A Application took place on 16 March 2021 before Recorder Winnie Tam SC, and judgment was reserved.

24.  On 7 April 2022, when the Recorder’s decision was still pending, the Plaintiff’s solicitors wrote to the Defendants’ solicitors stating that the Plaintiff had “now executed a counterpart of the Unwind Deed pursuant to clause 3.2 therein and agreed to be bound by its terms”. The letter further requested the Defendants’ assistance in “implementing the terms of the Unwind Deed, in particular, in transferring the [Shares] currently held by CBD back to [the Plaintiff]”.

25.  The Defendants’ solicitors responded by letter dated 11 April 2022 asking for a copy of the counterpart of the Unwind Deed signed by the Plaintiff, and stating (inter alia) that the Plaintiff’s execution of the Unwind Deed and assertion of ownership of the Shares was “fundamentally and diametrically opposite to his position in these proceedings which was, inter alia, that CBD was holding the Shares on trust for him but that he served notice to the 2^nd Defendant electing to receive cash consideration (purportedly in accordance with clause 2(d) or 2(e)(iii)(1) of Schedule 2 of the Employment Agreement) as an alternative to retaining ownership of the Shares”.

26.  The Defendants’ solicitors also wrote on the same day to the learned Recorder to inform her of the aforesaid developments, and stating that: (i) given the “new and changed circumstances…..there are strong and exceptional reasons to re-open and re-hear all parties’ arguments as to the [O14A Application]”; (ii) the Defendants will be making a formal application to restore the [O14A Application] and seek the appropriate directions from the Court as to the filing an service of further submissions as early as practicable; and (iii) they are in the process of preparing such application (“Intended Application to Re-Open”), and asking the learned Recorder to withhold handing down her decision on the O14A Application in the meantime until the disposal of the Intended Application.

27.  By letter dated 14 April 2022, the Plaintiff’s solicitors wrote to the learned Recorder stating (inter alia) that (i) the Plaintiff’s position remained unchanged, namely, that the Plaintiff is the beneficial owner of the Shares and CBD is holding the Shares on trust for the Plaintiff and CBD was willing and able to transfer the Shares back to the Plaintiff; and (ii) there was no reason to allow the Defendants to relitigate the issue.

28.  It is not in dispute that the Intended Application to Re-Open was ultimately not made by the Defendants.

29.  By the decision of the learned Recorder dated 15 June 2022 (“O14A Decision”)[2], the Order 14A Application was dismissed with costs against the Plaintiff.

30.  It appears from the O14A Decision that the learned Recorder took the view that she did not have all the necessary facts and matters before her in order to determine the questions of construction on the Second and Third Questions, and thus she exercised her residual discretion in favour of not determining the First Question either (see §91).

31.  In particular, the learned Recorder applied the 3-step test in Rockwin Enterprises Ltd v. Shui Yee Ltd [2003] 3 HKC 174 at [18] and found that because there was no assertion, evidence or admission before the Court as to whether “completion” within the meaning of clause 6 of the SPA had taken place, and if so, whether before or after the date of the Notice, the Court lacked the necessary factual basis to enable it to determine the Second and Third Question, and hence Step (2) of the Rockwin test was not satisfied i.e. the learned Recorder took the view that these questions were not suitable for determination under the O.14A procedure (see §§23, 24, 75, 77, 82).

32.  But notwithstanding the aforesaid, the Recorder did go on to consider and provide her analysis on all of the 3 Questions for the sake of completeness, and in deference to counsel’s arguments. In her analysis, the Recorder essentially acceded to all of the Plaintiff’s arguments on the 3 questions of construction, and rejected the Defendants’ contentions (see in particular, §§37-50, 79-80, 86-88).

33.  There has been no appeal by the Plaintiff against the O14A Decision.

34.  By P’s Summons, the Plaintiff now seeks summary judgment on the Bonus Claim, this time under Order 14 of the RHC, and also for an order to strike out the Bonus Counterclaim under Order 18 rule 19 of the RHC.

D. THE PARTIES’ RESPECTIVE POSITIONS

35.  The Plaintiff’s pleaded case in his Amended Statement of Claim filed on 14 December 2018 (“ASOC”) on the Bonus Claim is that:[3]

(1) The Notice served on the Defendants on 10 February 2017 was a valid notice electing to receive the Sign-On Bonus cash in the sum of US$1,000,000 in accordance with clause 2(d) or, alternatively clause 2(e)(iii)(1) of Schedule 2.

(2) On 7 July 2017, the Company made a payment of US$250,000 in two separate tranches to the Plaintiff, but have not paid him the balance of the Sign-On Bonus in the amount of US$750,000.

36.  In the D&CC, the Defendants have pleaded the following defences to oppose the Bonus Claim:

(1) Clauses 2 and 5 of the Deed of Termination have superseded the Plaintiff’s right to claim for the Sign-On Bonus (“1^st Pleaded Defence”).[4]

(2) The Plaintiff cannot invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares (“2^nd Pleaded Defence”).[5]

(3) The Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights (“3^rd Pleaded Defence”).[6]

(4) The Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights (“4^th Pleaded Defence”).[7]

37.  In support of the Bonus Counterclaim, the Defendants’ pleaded case is that the US$250,000 was paid to the Plaintiff by the Company not for the purpose of settling any entitlement of the Plaintiff under Schedule 2, but under the mistaken belief that it was obliged to do so when in fact it was under no such obligation.[8]

38.  It is common ground between the parties that the Bonus Claim and the Bonus Counterclaim are opposite sides of the same coin, such that if the Bonus Claim succeeds, the Bonus Counterclaim must fail and vice versa.

39.  The Plaintiff contends that the Defendants’ 1^st to 4^th Pleaded Defences lack merit, and they have already been rejected by the learned Recorder in the O14A Decision. The Plaintiff accepts that the Defendants are not bound by the Recorder’s conclusions, nor are such conclusions binding on this Court. However, the Plaintiff submitted that the Recorder’s analyses are cogent and compelling and there is no reason for this Court to depart from them.

40.  The Defendants contend that P’s Summons is an abuse of process in that the Plaintiff had, by the O14A Application, applied for pre-trial judgment but unsuccessfully, and P’s Summons does not seek to rely on any new event, evidence or argument to justify a repeat application for pre-trial judgment. On this basis, the Defendants ask the Court to dismiss P’s Summons, or alternatively, grant unconditional leave to defend. On the merits of this application for summary judgment, the Defendants rely primarily on the submissions which they had made before the Recorder, which they contend raise triable issues.

E. ABUSE OF PROCESS

E1. Legal principles

41.  It is not disputed that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. As accepted by the Defendants, the extent to which the doctrines of res judicata, issue estoppel and abuse of process apply to interlocutory decisions varies with (i) the nature of the original decision, and (ii) the nature of the second occasion where the doctrines might apply.

42.  In Chu Hung Ching v Chan Kam Ming [2001] HKC 396 at 401E-402D, Mayo VP referred to the following part of the Alberta Court of Appeal’s Judgment in Pocklington Foods Inc v The Queen in right of Alberta (1995) 123 DLR (4th) 141 at 144:

“… Res judicata and issue estoppel do not apply to procedural interlocutory motions. While in the judgment of Clement J.A. in Talbot, there is considerable discussion of the position where a decision is made on the adequacy of the material rather than on the merits of the application, when read as a whole the decision supports the position taken by McDonald J. in this case.

However, the court is not powerless to deal with attempts to re-litigate issues already decided by it. In Talbot, after refusing to apply res judicata to an interlocutory procedural application, Clement J.A. stated at p. 112:

‘… I am of the opinion that the principle does not apply to an interlocutory application of the nature now before us; rather, the second application is subject to control by the exercise of judicial discretion in determining whether it is frivolous or vexatious in all the circumstances then appearing.’

McDonald J. went on to consider the reasoning which should apply in controlling abuse of process. He cited from the decision of Lord Maugham L.C. in New Brunswick Ry. Co. v. British & French Trust Corp., Ltd, [1939] A.C. 1 (H.L.) at p. 20 (cited with approval in Talbot) as follows [at p. 282]:

‘If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.’

He continued:

‘Thus the raison d’etre of the principle of res judicata or issue estoppel lies in what is just and reasonable. Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not relitigation of an identical issue of law or fact:

(a) if the ruling on the first application was not based on the merits of the issue but on a technical objection …

(b) if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence …

(c) if there is new evidence that seriously justifies reconsideration of the issue;

(d) if there is a material change of circumstances of a non-evidentiary nature.’”

43.  Mayo VP went on to conclude at 402D-E:

“It is apparent from this that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. […]”

44.  In the case of Lau Sin v Wong Mary & Others [2018] HKLRD 202 at §33, Deputy High Court Judge Paul Lam SC (aftering considering various authorities) summarised the general principles applicable to the situation where the same interlocutory application was made again:

“(a) The doctrine of res judicata, properly-so-called, does not apply to interlocutory orders.

(b) If a party seeks to re-litigate a matter which has been determined in a previous interlocutory decision by taking out a second application, the second application is liable to be dismissed by the court, either of its own motion or on application, pursuant (sic) its inherent jurisdiction or Order 18, rule 19, on the ground that it constitutes an abuse of process.

(c) It will not be an abuse of process if there are express statutory provisions permitting the re-litigation of the matter. There are many express provisions allowing the respondent to an application to apply to set aside an order made in its absence or as a result of its failure to comply with certain procedural steps (eg Order 13, rule 9; Order 14, rule 11; Order 19, rule 9; Order 24, rule 17; Order 26, rule 8). Another useful example is that directions on evidence (including expert evidence) may also be revoked and varied by a subsequent direction (Order 38, rule 44).

(d) In the absence of any such express statutory provision, whether the second application constitutes an abuse of process must depend on the particular circumstances of each case. Generally speaking, the court should consider what is just and reasonable.

(e) It is inappropriate and impossible to set out exhaustively what the relevant considerations will be. Naturally, the court will need to consider the nature of the interlocutory application; whether the applicant had, or could and should have, challenged the first interlocutory decision by other means; and why a second application on the same matter has been made. Examples of situation where the court may conclude that there is no abuse of process include: the ruling on the first application was not based on merits but on a technical objection, the applicant failed to prove essential facts from mistake or inadvertence at the first application, there is new evidence that seriously justifies reconsideration of the issue; or there is a material change of circumstances.

(f) Nevertheless, the court should adopt a holistic, rather than a dogmatic or mechanistic, approach. At the end of the day, the court shall whether it is in the interests of justice to allow the second application to proceed having regard to all relevant circumstances of the particular case. And in considering how its discretion should be exercised, Order 1A, rule 2 requires the court to give effect to the underlying objectives of the RHC as set out in Order 1A, rule 1.”

45.  It can be seen from the aforesaid cases that the principle of res judicata is not applied to interlocutory applications strictly, and that whether there is any abuse of the process of the Court in raising the same issue in another interlocutory application should be considered on a case-by-case basis.

46.  The parties confirmed to this Court at the hearing that they have no quarrel with the above principles.

E2. Whether P’s Summons is an abuse of process?

47.  Mr. Thomas Wong (counsel for the Plaintiff) submitted that there is no abuse of process by the Plaintiff in issuing P’s Summons. The main arguments raised by Mr. Wong in his written submissions and orally at the hearing before this Court are as follows:

(1) First, the O14A Application was defeated only by reason of a technicality, in that the application was dismissed by the Recorder solely because of the way how the Second Question and the Third Question were framed. Mr. Wong submitted that if the two questions were combined into one, i.e. in asking the Court to determine whether the Notice was a valid notice either under clause 2(d) of Schedule 2 or under clause 2(e)(iii) of Schedule 2, then the Recorder would have been able to determine the question.

(2) Second, the Recorder did not find any of the Defendants’ pleaded defences to be arguable, but in fact rejected them. In pursuing P’s Summons, the Plaintiff is not seeking to attack or circumvent any matter decided by the Recorder. Instead, Mr. Wong submitted that the Recorder’s analyses on the points of construction were correct.

(3) Third, it is entirely reasonable for the Plaintiffs to have taken the view that there is no viable appeal against the learned Recorder’s decision, as it was open to the Recorder to have come to the conclusion she did in the exercise of her discretion, and in light of how the questions of construction were framed in the O14A Application.

(4) Fourth, in deciding whether P’s Summons is an abuse of process, this Court should also take into account the underlying merits of P’s Summons, and whether the Defendants have any arguable defence. If the Defendants have no arguable defence, the Plaintiff should not be precluded from seeking summary judgment and be forced to take the Bonus Claim to trial.

48.  Mr. Edward Alder (counsel for the Defendants) confirmed to the Court at the hearing that the Defendants are not relying on issue estoppel or res judicata estoppel in the strict sense to preclude the Plaintiff from issuing a second application for pre-trial judgment. His argument is that P’s Summons should be dismissed as being an abuse of process on the ground that it is essentially a “re-run” of the O14A Application, when the position before this Court is the same as it was before the Recorder, but only that this time the application for pre-trial judgment is made under Order 14 RHC as opposed to Order 14A RHC. Mr. Alder submitted that:

(1) The Plaintiff cannot bring himself within any of the exceptions identified in Chu Hung Ching (supra) where repeated interlocutory applications are permitted.

(2) In particular, the O14A Application did not fail by reason of any technicality. It was open for the Recorder to have entered judgment for the Plaintiff on the Bonus Claim (by converting the application under Order 14A RHC to an Order 14 RHC application) but she exercised her discretion not to do so. The Recorder was also not bound by the questions of construction as framed in the O14A Application.

(3) Further, the Plaintiff does not rely on any new evidence in support of the P’s Summons. In particular, the Plaintiff adduced no new evidence regarding when “completion” occurred. The Plaintiff’s 2^nd Affirmation made in support of P’s Summons only includes a statement that “I have been advised by my lawyers and believe that “completion” of the CBD buyout had taken place by the time I issued the Notice. I also have no reason to doubt that the conditions and obligations set out in clause 4.1 and Part A of Schedule 4 of the SPA had either been fulfilled or waived”. In any case, the Plaintiff’s position is that whether completion has occurred is irrelevant to his claim.

(4) Hence, the position before this Court is exactly the same as it was before the learned Recorder, except that the Unwind Deed has now allegedly been signed by the Plaintiff. However, for the purpose of P’s Summons, the Plaintiff’s position is that his signing of the Unwind Deed is irrelevant.

(5) Instead of issuing P’s Summons to seek pre-trial judgment for a second time, the Plaintiff could instead have appealed the O14A Decision (in which case the Defendants could then issue a Respondents’ Notice), or simply brought the matter on to trial.

49.  Applying the undisputed legal principles set out in Section E1 above, in determining whether P’s Summons constitutes an abuse of process, the Court shall consider all relevant circumstances and decide what may be just and reasonable, taking a holistic, rather than a dogmatic or mechanistic approach, and ultimately deciding whether it is in the interests of justice to allow P’s Summons to proceed notwithstanding the dismissal of the O14A Application.

50.  After careful consideration of the parties’ respective submissions, I am of the view that P’ Summons ought not be considered to be an abuse of process.

51.  First, it cannot be in dispute that the dismissal by the Recorder of the O14A Application was not by reason of the underlying merits of the Plaintiff’s Bonus Claim, but because she was of the view that the Court lacked the necessary factual basis (in relation to whether “completion” under the SPA had taken place when the Notice was served) to enable it to determine the Second and Third Questions as framed in the O14A Application. On such basis, the Recorder was of the view that Step (2) of the Rockwin test was not satisfied.

52.  I agree with Mr. Wong’s submission that the perceived difficulty of the Recorder in determining the Second and Third Questions was due only to the way in which they were framed. Had such questions been framed differently (see §47(1) above), the Recorder would have been able to determine the questions. As the Recorder observed (at §70 of the O14A Decision), if the Plaintiff’s rights under Schedule 2 were exercised before completion of the SPA, then clause 2(d) applied, and if they were exercised after completion, then clause 2(e)(iii) could apply.

53.  Hence, I agree with Mr. Wong that the O14A Application was defeated by reason of a technicality, in a sense that its dismissal was not related to the underlying merits of the Plaintiff’s Bonus Claim. Indeed, the learned Recorder acceded to the all of Plaintiff’s arguments on construction, including on the proper construction and applicability of Clauses 2(d) and 2(e)(iii) of Schedule 2.

54.  Second, whilst it is true that the Plaintiff does not, for the purpose of P’s Summons, rely on any additional evidence which was not before the Recorder (including as regards whether “completion” had taken place[9]), the nature of the O14A Application and P’s Summons are not identical. As Mr. Wong submitted, whereas the question of whether completion had taken place when the Notice was served is not a relevant consideration for the purpose of P’s Summons and P’s Bonus Claim, it was arguably relevant for the purpose of the O14A Application, but solely by reason of how the Second and Third Questions were framed.

55.  Third, I am of the view that although the Recorder was not strictly bound by how the Second and Third Questions were framed in that for example, she did have power under Order 14A RHC to: (i) combine the Second and Third Questions and reframe them in the alternative (see §47(1) above); or (ii) determine the Second Question in the affirmative on the assumption that completion under the SPA had not yet taken place by the time the Notice was issued, and to determine the Third Question in the affirmative assuming completion had taken place by the time the Notice was issued, and concluded that either way, the Plaintiff would have been entitled to Judgment on the Bonus Claim. But I also agree with Mr. Wong that although the Recorder had the power to do so, it was also open to her, in the exercise of her discretion, to decline to determine the questions by reason of how they were framed in the O14A Application.

56.  As submitted by Mr. Wong, for the purpose of deciding whether there is an abuse of process, the question for this Court should not be whether the Plaintiff in fact had a viable appeal against the O14A Decision, but whether it was reasonable for the Plaintiffs to have taken the view that they did not have a viable appeal against the O14A Decision.

57.  I am of the view that it cannot be said to be unreasonable for the Plaintiff to have taken the view that there was no viable appeal against the O14A Decision, on the basis that the exercise of discretion by the Recorder in declining to answer the questions by reason of the way they were framed is arguably not plainly wrong so as to justify intervention by the Court of Appeal.

58.  Mr. Alder fairly accepted that it was indeed open for the Recorder to have declined to determine the 3 questions as framed in the O14A Application (and he went further to accept that the Recorder was correct in so declining). He further accepted that the decision not to determine the 3 questions was an exercise of the Recorder’s discretion which cannot be interfered with by the Court of Appeal unless it was shown to be plainly wrong. However, Mr. Alder went on to submit that the Recorder could, having declined to determine the 3 questions, nonetheless have granted judgment for the Plaintiff as if the application was an Order 14 RHC application for summary judgment. I am unable to agree with such submission.

(1) First, this alternative approach was never canvassed by either party during the hearing before the Recorder. It would not have been right for the Recorder to have treated the application as an Order 14 RHC application without receiving submissions from the parties on the justifiability of such course.

(2) Second, Order 14A rule 1 RHC expressly states that “The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings …. (2) upon such determination the Court may dismiss the cause or matter or make such order or judgment as it thinks just.” (emphasis added). Hence, the Court’s jurisdiction to make orders under Order 14A RHC is premised upon its determination of questions of law or construction.

59.  In any event, even if the Recorder’s powers were as wide as contended for by Mr. Alder, the ultimate question is whether the Plaintiff was reasonable in taking the view that there is no viable appeal against the O14A Decision because the Recorder’s exercise of discretion was not plainly wrong. I consider that it is not unreasonable for the Plaintiff to have taken this view. The fact that another Judge may have come to a different conclusion is irrelevant.

60.  Fourth, I also agree with Mr. Wong that this Court can take into account the merits of P’s Summons as part of the holistic review of the relevant circumstances to decide whether it is an abuse of process. This is not a case where the underlying merits of the Bonus Claim have been considered and rejected by one judge, and the Plaintiff is seeking a second determination before a different judge hoping for a different result. The Plaintiff is not mounting a collateral attack on the Recorder’s findings on the underlying merits of the Bonus Claim. To the contrary, the Plaintiff endorses the Recorder’s findings as being correct. Ultimately, the Court has to decide what may be just and reasonable, and whether allowing the Plaintiff to pursue P’s Summons would be in the interests of justice.

61.  For the reasons I have set out in Section F below, I am of the clear view that the Defendants have no arguable defence to the Bonus Claim and the Bonus Counterclaim is also unarguable. Hence, it will not be just and reasonable nor would it be consistent with the underlying objectives in Order 1A r.1 RHC to preclude P’s Summons, and force the Plaintiff to pursue the Bonus Claim and defend the Bonus Counterclaim at a full trial, especially when such claims turn only on matters of legal construction of the relevant contractual documents.

62.  Lastly, I also reject the Defendants’ contention that the Plaintiff has engaged in “judge shopping” by not fixing P’s Summons before the Recorder, hoping that a different judge would arrive at a better result for the Plaintiff. I do not consider that P’s Summons must necessarily be dealt with by the Recorder. In any event, P’s Summons was initially fixed before a Master in accordance with the usual procedure, and subsequently directed by the Master to be fixed for substantive hearing before a Judge.[10] The Notice of Hearing was issued on 14 February 2023 stating that P’s Summons had been fixed before Keith Yeung J. At no time prior to the Defendants’ Skeleton Submissions dated 14 August 2023 did the Defendants indicate their position that P’s Summons should be fixed before the Recorder.

63.  For the above reasons, I find that P’s Summons is not an abuse of process and the Plaintiff should not be precluded from pursuing it.

F. SUMMARY JUDGMENT AND STRIKING OUT

64.  The approach of the Court in summary judgment applications is well-established:

(1) The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2) The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend.

(3) The burden is on the defendant to show a real or bona fide defence or a triable issue by condescending upon particulars. The defendant must satisfy the Court that her evidence is believable and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4) In assessing the credibility of the defendant’s factual case, the Court will not embark upon a mini-trial on affidavit evidence. However, if having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(5) If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

See: Guanghua SS Holdings Limited v Lim Yew Cheng [2022] HKCFI 1052, §13 (per Ng J); Bhagwandas Kewaleram Murjani v Bank of India [1990] 1 HKLR 586 (CA), 589G-590H (per Hunter JA).

65.  Pleadings may only be struck out in plain and obvious cases. Yet, plain is not the same as simple, and obvious is not the same as short. A manifestly misconceived claim with no prospect of success would also be deemed frivolous and an abuse of process, and may be struck out on those grounds: see Hong Kong Civil Procedure 2023, §§18/19/4, 18/19/7.

66.  The parties’ respective pleaded cases on the Bonus Claim and the Bonus Counterclaim have been summarised in §§35 to 38 above.

67.  For the reasons below, I do not consider that any of the Defendants’ pleaded defences to the Bonus Claim[11] are arguable, or raise any issues that should go to trial. For the same reasons, I also take the view that the Bonus Counterclaim is unarguable and should be struck out.

68.  In providing my analyses below, I have (as invited to do so by counsel for both sides) considered the arguments advanced by the parties before the Recorder in the O14A Application, and also considered the reasoning provided by the Recorder in the O14A Decision, whilst bearing in mind that such reasoning is not binding on this Court. I have also considered the further submissions of the parties on the merits of the Bonus Claim and Bonus Counterclaim for the purpose of P’s Summons.

F1. 1^st Pleaded Defence – Clauses 2 and 5 of the Deed of Termination have superceded the Plaintiff’s right to claim for the Sign-On Bonus

69.  Under the 1^st Pleaded Defence, the Defendants’ case is that Clauses 2 and 5 of the Deed of Termination had the effect of superceding the Plaintiff’s right to claim for the Sign-On Bonus under Schedule 2.

70.  On the other hand, the Plaintiff’s case is that Clauses 2 and 5 of the Deed of Termination only affects the Plaintiff’s rights as shareholder of the Company, otherwise, the clauses would have operated to terminate the Employment Agreement of the Plaintiff with the Company by mutual agreement.[12]

71.  The 1^st Pleaded Defence has been dealt with in detail by the Recorder in the O14A Decision §§37-50. I agree with the Recorder’s analyses which accord with my views.

72.  As the Recorder rightly found, Clauses 2 and 5 of the Deed of Termination clearly only had the effect of terminating the Shareholders Agreement, not the Plaintiff’s right to the Sign-On Bonus under the Employment Agreement.

73.  First, the “Background” section of the Deed of Termination makes it clear that the parties had only intended to terminate the Shareholders Agreement, which was a condition precedent under Clause 4.1(c) of the SPA: see O14A Decision §44.

74.  Given the context and purpose for which the Deed of Termination was executed, Clause 2 thereof could not have been intended by the parties to have the effect of terminating or superceding any rights of the Plaintiff as employee under the Employment Agreement without even specifically referring to it: see O14A Decision §45.

75.  Second, if one adopts the Defendants’ interpretation of Clauses 2 and 5 of the Deed of Termination, this would lead to the somewhat absurd result that the Plaintiff’s obligations as an employee of the Company would also have been superceded. This could not have been what the parties had intended: see O14A Decision §46.

76.  To the contrary, Schedule 7 paragraph (g) of the SPA expressly prohibits the Company from making any change to the terms and conditions of employment of the Plaintiff: see O14A Decision §47.

77.  Further, it is clearly shown from Clause 2(e)(i) and (iii) of Schedule 2 that the parties intended that the Plaintiff’s right to the Sign-On bonus would survive and continue to subsist during the period of the Third-Party Buyout, being an event which the parties had envisaged at the time the Employment Agreement was entered into: see O14A Decision §48.

F2. 2^nd Pleaded Defence – The Plaintiff cannot invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares

78.  Under the 2^nd Pleaded Defence, the Defendants’ case is that the Plaintiff was not entitled to invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares. This argument has no merit and has, in my view, been rightly rejected by the Recorder at O14A Decision §§79-80.

79.  First, it is common ground that CBD never paid the consideration for the transfer of the Shares.[13] Hence, as the Recorder rightly found, the beneficial title to the Shares remains with the Plaintiff. Further, without having paid the consideration, there is no basis for CBD to retain the legal title of the Shares transferred, and it has been holding the Shares on constructive trust for the Plaintiff and is obliged to return the same to the Plaintiff: see O14A Decision §79.

80.  Second, on proper construction of Clause 2(d) of Schedule 2, it is irrelevant that the legal title of the Shares had been transferred to CBD since the Plaintiff remained the beneficial owner of the Shares. Contrary to the Defendants’ pleaded case^[14], nothing in Clause 2(d) suggests that legal title of the Shares must, as a “condition” of the agreement, also be vested in the Plaintiff at the time of the Notice, even if he only has the beneficial title and would be legally entitled to call for the transfer back of the Shares. I agree with the Recorder’s view that the Notice issued by the Plaintiff pursuant to Clause 2(d) is not made invalid only because he had yet to procure the return of the legal title of the Shares to him from CBD: see O14A Decision §80.

F3. 3^rd Pleaded Defence – The Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights

81.  Under the 3^rd Pleaded Defence, the Defendants’ case is that the Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights. This argument has no merit and has, in my view, been rightly rejected by the Recorder at O14A Decision §§86-88.

82.  The parties’ dispute turns on how the following words in parentheses in Clause 2(e) should be interpreted: “if any transaction occurs by which the shareholders of the Company (including yourself whether by way of drag-along or tag-along rights…) agrees to surrender, transfer … their interest in the shares of the Company to … the Third-Party Buyout” (emphases added).

83.  The Defendants argue that the words in parentheses limit and define the circumstances in which the right to serve a notice is available to the Plaintiff. They submit that the reference to “whether by way of drag-along or tag-along rights” means that the Plaintiff has no right under Clause 2(e)(iii) if has joined the Third-Party Buyout on any other basis other than as defined.

84.  On the other hand, the Plaintiff contends that there is nothing in Clause 2(e) that could suggest that the Plaintiff has to have entered into the SPA by reason of exercising tag-along rights or by other shareholders having exercised on him drag-along rights before he was entitled to the give notice under the clause.

85.  I agree with the Recorder’s analyses that on the proper construction of Clause 2(e), it can be invoked even where (not only if) the Plaintiff participates in the Third-Party Buyout by reason of tag-along or drag-along rights. If it were intended to exclude the Plaintiff as a shareholder from agreeing to a Third-Party Buyout other than by exercising tag-along rights or having been dragged along, such exclusion would have been made clear: see O14A Decision §86.

86.  As the Recorder rightly observed, the aforesaid construction is further supported Schedule 2 Clause 2(e)(iii)(2), where the “express intention that the formula in the preceding paragraph preserves a right by [the Plaintiff] to receive a total sign-on bonus of US$1,000,000 within the Term, …” is stated “for the avoidance of doubt and in the event of any dispute”: see O14A Decision §88.

F4. 4^th Pleaded Defence – The Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights

87.  As regards the 4^th Pleaded Defence i.e. that the Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights, it has also been dealt with by the Recorder at O14A Decision §89. I agree with the Recorder that such contention has no merit.

88.  First, it is plain that Clause 2(e) contains no requirement that the Notice has to specify the forgoing of earn-out rights.

89.  Second, there are 2 options for the Plaintiff under Clause 2(e) i.e. either (i) to retain the future earn-out rights as a shareholder within the Third-Party Buyout, or (ii) to elect to forgo the future earn-out rights and receive the cash payment (calculated in accordance with sub-clause 1) in return. The statement by the Plaintiff in the Notice that “it is my decision to elect to receive a cash payment calculated in accordance with sub-clause 1” already made it clear that the Plaintiff elected to forgo the future earn-out rights.

90.  For completeness, the Defendants have also pleaded[15], that the Plaintiff is not entitled to invoke Clause 2(e)(iii) since “CBD holds the Shares by reason of the Plaintiff ’s refusal to enter into the Unwind Deed”. I also reject this argument. It is irrelevant that CBD was holding the legal title of the Shares due to the Plaintiff’s refusal to sign the Unwind Deed. Nothing in Clause 2(e)(iii) suggests that legal title of the Shares must be vested in the Plaintiff at the time of the Notice. The analyses at §§79 and 80 above in relation to Clause 2(d) applies equally to Clause 2(e)(iii).

91.  For the above reasons, none of the Defendants’ pleaded defences on the Bonus Claim have any merit or raise any triable issues. For the same reasons, the Bonus Counterclaim is also unarguable and bound to fail and thus ought to be struck out.

G. OTHER POINTS RAISED BY THE DEFENDANTS

92.  The Defendants raised the following fuether points in opposition to P’s Summons which are dealt with below.

93.  First, it is alleged that there has been a “change of position” on the part of the Plaintiff in that he has, in 2022, allegedly signed the Unwind Deed.

94.  Mr. Alder contends that there is no evidence as to the Plaintiff’s intention in signing the Unwind Deed and that the Plaintiff has also not provided any evidence of CBD’s consent to such late signing or the signed counterpart. Mr. Alder contends that in signing the Unwind Deed, the Plaintiff appears to be taking a different position than the position taken before the Recorder, and the “natural inference” from the Plaintiff’s belated signing was that he intended and intends to keep the Shares. He argues that this weakens the Plaintiff’s application for summary judgment.

95.  I am of the view that the alleged signing of the Unwind Deed does not affect the merits of the Bonus Claim at all. The Unwind Deed is concerned with reversing the CBD Transaction, rather than affecting the Plaintiff’s right to the Sign-On Bonus under Schedule 2. This is evident from the “Background” section of the Unwind Deed.

96.  Whether the Plaintiff has signed the Unwind Deed or not cannot affect the validity of the Notice and the Plaintiff’s entitlement to the Sign-On Bonus, or somehow “weaken” the Plaintiff’s application for summary judgment. The Plaintiff’s case is that CBD has been holding the Shares on trust for him all along (see §79 above) and CBD is willing and able to return the Shares to the Plaintiff or anyone else upon the Plaijntiff’s instructions.[16] The Plaintiff’s execution of the Unwind Deed in 2022 only goes to show that the Plaintiff was still able to demand CBD to transfer the legal title of the Shares back to him and is consistent with the Plaintiff’s pleaded case.

97.  Second, insofar as the Defendants argue that the question of whether “completion” had taken place when the Notice was served had not been adequately addressed in the Plaintiff’s evidence, and is a matter for trial, I reject this argument.

98.  Whether completion under the SPA had taken place when the Notice was issued is irrelevant to the Plaintiff’s Bonus Claim. If completion had taken place, then the Plaintiff was entitled to invoke Clause 2(d) of Schedule 2. If completion had not taken place, the Plaintiff was entitled to invoke Clause 2(e) of Schedule 2. Either way, the Plaintiff is entitled to the Sign-On Bonus.

99.  In fact, the Defendants had not pleaded that the Bonus Claim should be dismissed because either the SPA had completed or had not yet completed at the time the Notice was served. Indeed, the Defendants have not themselves filed any affirmation evidence on this issue. Nor have they provided any response to the statement in the Plaintiff’s 2^nd Affirmation that the Plaintiff has been advised by his lawyers and believe that “completion” of the SPA had taken place by the time the Notice was issued (see §48(3) above).

100.  For completeness, I also do not consider that the Notice is defective or rendered invalid just because it stated that the Plaintiff was writing to “notify [the Company] under clause 2(d) and (e)(iii) of Schedule 2 of my decision to receive [the Sign-On Bonus]” (emphasis added), albeit that only one of the two provisions could apply depending on whether completion had taken place. The mistaken use of the word “and” as opposed to “or” cannot change the substance, effect or purpose of the Notice, which was to inform the Defendants of the Plaintiff’s election to receive the Sign-On Bonus of US$1,000,000.

101.  Third, insofar as the Defendants argue they have a good defence and bona fide counterclaim by reason of the new pleas in the draft Amended Defence and Counterclaim (which was not pursued in Mr. Alder’s written or oral submissions before this Court), I reject this argument. The new pleas are substantially identical to the assertions contained in the D3’s 1^st Affirmation[17] filed in opposition to the O14A Application.

102.  As rightly observed by the Recorder, these assertions concern the parties alleged “subjective intentions” and “changing mentality”, which are irrelevant to the construction exercise: see O14A Decision §74.

103.  In any case, Mr. Alder has not provided any submissions to this Court as to how such new pleas may affect the arguability of the Defendants’ pleaded defences.

H. DISPOSITION

104.  For the reasons above, I make the following orders:

(1) Final judgment be entered against the Defendants for the sum of US$750,000;

(2) There be an order nisi that the Defendants do pay to the Plaintiff pre-judgment interest at prime rate plus 1% from 10 May 2017 until the date of judgement, and at judgment rate thereafter until payment;

(3) Upon the Defendants paying to the Plaintiff the sum of US$750,000 plus interest in compliance with paragraphs (1) and (2) above, the Plaintiff do forthwith procure the transfer of the Shares to the 1^st Defendant (or its agent, nominee or assign);

(4) The 1^st Defendant’s counterclaim for the sum of US$250,000 be struck out on the grounds that (i) it is scandalous, frivolous and vexatious; and (ii) may prejudice, embarrass or delay the fair trial of the action; and/or (iii) is otherwise an abuse of process of the Court;

(5) Cost of and incidental to P’s Summons be paid by the Defendants to the Plaintiff, summarily assessed at HK$261,498.10;

(6) Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed; and

(7) Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed.

105.  The order nisi set out in §104(2) above shall become absolute unless an application to vary the same is made within the next 14 days.