CANTAB INTERNATIONAL LTD AND OTHERS v. LUK NGAI LING IRENE AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 926 AND 1022 OF 2012

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(Consolidated pursuant to the Order of
Mr Registrar K W Lung dated 10 January 2014)

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J U D G M E N T

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1.  This action concerns a contractual dispute between the parties arising out of an agreement, written in Chinese with English additions, and dated 2 April 2012. It provided for the sale by the defendants to the plaintiffs of a business composed of certain tutorial establishments in Hong Kong.

THE PARTIES

2.  The first‑named plaintiff is a limited company incorporated by the second‑named plaintiff for the purpose of running the tutorial business to be acquired under the agreement.  The 2^nd plaintiff is a businessman with some experience of running such educational establishments.  He has Degrees in Engineering Management and Business Administration and has been involved in some public organisations in the educational field.  His existing corporate persona is The Hong Kong Communication Art Centre through which he is the principal, school supervisor and manager of a number of private educational institutions largely offering secondary and tertiary level courses.

3.  The third‑named plaintiff is effectively the 2^nd plaintiff’s business partner for the purposes of the purchase of the defendants’ businessthough he was not a party to the agreement for sale itself save as a guarantor (see later).

4.  The first‑named defendant is a business woman of some experience in the running and management of a number of tutorial establishment and for the purposes of this action is the direct and overall controller or manager of the schools which operated under the umbrella of the 2^nd, 3^rd, 4^th and 5^th defendants.  The 1^st defendant’s businesses were run by this convoluted structure of companies, the only practical purpose of which seems to have been for the avoidance or reduction of liability for tax.  In fact, as is readily apparent, they conceal, albeit flimsily,a straightforward business of running these tutorial establishments, although the nature of the various arrangements for employment and payment of the tutorial staff was, on the fact of it, less straightforward, even if they constituted the norm in Hong Kong.  The controlling entity of all these companies and therefore of the schools was the 1^st defendant.  She appears to have controlled 100 per cent of the shares of these companies, either in her own name or through a nominee.  Some of the companies are incorporated in the British Virgin Islands.

5.  A chart of the companies’ structure was prepared at my request, during the course of this trial and although its final form does not meet the expected picture of a graphic representation of the interconnection, the scene is clear enough.

6.  The 2^nd defendant, the Fo Tan school (including the Tai Wo and Wo Che schools), and the 3^rd defendant, the Kowloon Bay school, are limited companies running the respective schools under the holding BVI company Regent Gold Business Limited, owned and/or controlled by the 1^st defendant.

7.  The 4^th defendant, the Prince Edward school, is a limited company running that school under the holding BVI company Grand ProfitEnterprise Limited, also owned and/or controlled by the 1^st defendant.

8.  The 5^th defendant, the significance of which starts with its position as the tenant of all the premises of the various schools and its liability to the landlord(s) of the various premises occupied by the schools, is the company whose shareholding was to be sold to the 1^st plaintiff.  The mere fact that some or all of the companies holding their respective schools discharged the 5^th defendant’s liability for rent and repairs and any other financial obligations under the leases has no significance.  It wasan accounting exercise and clearly under the control of the 1^st defendant.

9.  At first sight, this plethora of companies might seem to hold some significance in this action, but that is merely a smokescreen.  The actuality is very straightforward.  Like any tutorial institution, there are premises to be leased (if not owned), paid for and maintained with other incidental expenditure.  The source of income is the fees paid by the students for the courses and classes which they wish to attend.  There are tutors to be hired ‘ad hoc’ or on contract, who are paid salaries, or commission or one‑off fees for their services, or a combination of any of those forms of remuneration.

10.  There are administrative staff to be hired and paid and a variety of other outgoings to be met in order to run the business efficiently.  All these financial aspects may be divided amongst a variety of companies, as in this case, but they are easily traced and identified fully (providing companyaccounts and reports contain the necessary information and there is a peculiar absence of such essential information in the reports, accounts and notes in respect of these companies) to disclose the straightforward nature of such a business even though much paper work and many book‑keeping and accounting hours have been generated to spread the picture into a number of cameos.

THE PRELIMINARY NEGOTIATIONS

11.  Although there were such and the necessary aspects can easily be guessed at, preliminary discussions appear to have included some of the tutors at the defendant schools.  Inevitably there was consideration of the assets of the business and the goodwill generally.  The teachers, who appear to enjoy a cult status in the educational world in Hong Kong, as do brilliant lecturers at universities across the Western world, were rightly regarded as integral to the success of the business, as were the students who were attracted by the quality of the tutors and were to provide the income for the running of the establishments.

12.  The plaintiffs expected to be able to continue to engage/‌employ the tutors either on the basis of their existing contracts or by means of negotiated new contracts with their own business.  It was understandable, as a matter of common sense and commercial reality, that no obstacles wouldor should be placed in their path in respect of their fundamental requirements.

13.  The impact of the plaintiffs’ evidence and approach was that the business was to be taken over as far as possible, as a going concern.  Although Mr Jason Pow SC, for the defendants, demurred at this suggestionwhen I put it to him in the course of his opening, which followed immediately after that of Mr Wilson Leung, for the plaintiff, any other view would be untenable.  Of course there would always be a risk that some tutors mightnot wish to serve under new ownership, and some students might terminatetheir attendance at the courses as a result of that.  It was a risk that would require elimination by the new owners by means of contracts with the tutors and perhaps reassurance of the students.  The seller as part of its bargain in the sale would be obliged to facilitate or aid this transition and avoid doing anything which might disrupt continuity of staff and students.  The plaintiffs were not seeking to buy a crewless empty ship, devoid of sails and rudder.

14.  In the face of it, the 1^st defendant recognised this and purported to aid the transfer as smoothly as possible.  Beyond these matters, the negotiations have little significance.

THE WRITTEN AGREEMENT OF 2 APRIL 2012

15.  This was preceded by a draft agreement prepared by the 1^st defendant and sent to the 2^nd plaintiff by e‑mail, either on 1 or 2 April.  On 2 April the 1^st defendant presented the plaintiffs with another draft at her office.  It may have been the same as the first draft but that matters not in the event. The 2^nd plaintiff, Dr Ng, required some amendments to itin order to protect his position financially and they were duly incorporatedin the signed agreement.  That agreement was typed/‌checked in Ms Luk’s office by her assistant.  It needs to be examined clause by clause as the defendants’ case, in some respects, proceeds upon the basis of her construction of some of the clauses.

16.  Although it is written in Chinese with the interposition of certain phrases in English, which are themselves significant, I have had the benefit of a certified English translation about which there is no dispute as to the contents of the translation.

The Preamble

17.  This essentially identifies the parties to the Agreement to which I will add some detail by way of clarification.

Party A -	is the 1st plaintiff, the company by which the 2nd plaintiff and his partner were to operate the business of the tutorial schools.
Party B -	consists of the three defendant companies (2nd, 3rd and 4th defendants) running the schools at Fo Tan, Tai Wo and Wo Che (2nd defendant), the Kowloon Bay school (3rd defendant) and the Prince Edward school (4th defendant).
Party C -	is the 5th defendant which bears the principal liabilities of all the schools, viz the tenancy agreements in respect of the premisesoccupied by the schools, and therefore responsible for the rent and other outgoings under the leases.
Party D -	This covers the 2nd and 3rd plaintiffs as guarantors for the 1st and4th schools constituting (in Party B) the 2nd and 3rd defendants. It may be that the guarantee extends to all four schools.  My copy is not clear but it matters not.
Party E -	is the 1st defendant, Ms Luk.

The 1^st clause (in two parts)

The 2^nd clause

19.  The 1^st plaintiff is to pay to the 5^th defendant HK$100,000 to purchase the shares and to the 2^nd, 3^rd and 4^th defendants (Party B) the “deposits for the rental(s), management fees etc. (see Attached Table) in the total amount of HK$1,910,216.50” which Party B (the 2^nd, 3^rd and 4^th defendants) has paid to the landlords of the premises.  The total payable was thus HK$2,010,216.50 to be settled in two instalments.

20.  The first in the sum of HK$1,000,000 was to be paid on the signing of the Agreement.

21.  The second (Clause 2(2)), the balance of the agreed purchase price “shall be paid on 30 April 2012.  Party C [the 5^th defendant under the control of the 1^st defendant] will ensure that an updated Audit Report will be provided before receiving the balance.”  That is the agreed translation.

22.  It is this clause which has excited controversy between the parties and I need to consider this separately in the light of the defendants’ arguments, although it allows of only a straightforward common sense construction. It is interesting to note that in the Chinese Written Agreement clause 2(2) has the English words “updated Audit Report”.  They mean what they say.  This clause is pivotal to the Agreement.

The 3^rd clause

23.  This is uncontroversial.  It provides for the transfer, viz the subject matter, of the sale and purchases to be completed by 2 April 2012.

The 4^th clause

24.  This too incorporates two provisions, each either side of 1 April, i.e. one day before the signing of the Agreement.  The 2^nd, 3^rd and 4^th defendants (Party B) who run the five schools, are to pay all the expenses of that unit (this must mean their respective units), including, but not limited to, rental and management fees, air‑conditioning fees, employee salaries and tutor commissions etc to the relevant persons or bodies.

25.  After that date (ie from or after 1 April) the plaintiffs (Party A) are to pay those identified expenses.

26.  This is a straightforward provision to give business efficacy to the purchase/sale of the business owned by the 1^st defendant through her corporate structure.

The 5^th clause

27.  This is essentially concerned with the mechanics of obtainingapproval of the purchasers (the plaintiffs) effectively the 2^nd plaintiff, Dr Ng,from the Education Bureau as supervisors, and managers of the educational establishments.

28.  At the time of the completion of the Agreement, the 2^nd, 3^rdand 4^th defendants or their related persons, and that includes the 5^th defendant,and the 1^st defendant, and any other corporation or individual related to themsuch as a company not specifically identified hitherto in the agreement, namely Cantab Education Administration Limited (otherwise referred to in this hearing as CEAL which is the 1st defendant’s administration company), as well as the BVI holding companies, were to submit to the plaintiffs resignation letters in respect of the position of supervisors and managers of the five schools — effectively these were one person, the 1^st defendant.

29.  Once the Education Bureau has approved the appointment of the 2^nd plaintiff (in effect the authorized person) as supervisor and managerof the schools, then the 2^nd plaintiff shall send the resignation letters of the resigning persons (effectively the 1^st defendant) to the Education Bureau.  These letters were duly handed over at the time of the execution of the agreement.  What the 1^st defendant subsequently said and did in respect ofthose letters provided by her as part of the written agreement is significant, controversial and falls to be examined later.

The 6^th clause

30.  This concerns only two of the schools — Fo Tan and Kowloon Bay.  The 1^st defendant was the existing guarantor of these.  The 2^nd and3^rd plaintiffs, Dr Ng and Mr Leung (referred to in the Agreement as Party D) agreed to take over as guarantors.  Although there appears to be some particular status with regard to these schools requiring such guarantees, this occasions no controversy or distinct consideration.

The 7^th (final) clause

31.  The 1^st defendant provided a personal guarantee to the plaintiffs that the 5^th defendant had no debts or liabilities, and, if such did materialise, she undertook to be personally responsible for them.

32.  That provision is also unequivocal.

THE SUBSEQUENT EVENTS AND EFFECTS

33.  The deposit of HK$1,000,000 and shares payment of HK$100,000 having been made and the signed share transfer documents having been handed over by the 1^st defendant together with the signed resignation letters, there remained a time lapse of four weeks before the important date of 30 April was reached — the deadline in clause 2(2) of the agreement for the provision of the updated audit report before the balance of the purchase price was to be paid.

34.  Dr Ng and Mr Leung went their separate ways on holiday between 3 and 15 April.  That was clearly some agreement between the parties that Ms Luk and staff would keep the tutorial businesses “ticking” over in the interim and this seems to have been done albeit, it appears, on a minimal level.  Ms Luk in her statement made it clear that she wanted to get out of the education business, her prime area of concern being the payment of the balance of the purchase price, and she knew that the plaintiffs had come to some arrangement with some tutors to continue to organize and give lectures and tutorials in the interim.

35.  Ms Luk said that she had arranged for the formal handover to include the provision of keys, to take place on or about 15 April after the return from Monday.  Thereafter matters concerning the plaintiff’ running of the tutorial schools proceeded in fits and starts with the plaintiffs’concern that the 1^st defendant was not providing the necessary records andcontact information of tutors and students.  In the meantime the deadline of 30 April 2012, as provided in clause 2(2) of the Agreement, was getting closer.

36.  The plaintiffs’ concern was reflected in their solicitors’ letter of 23 April following up their earlier letter of 17 April.

37.  There was clearly a conflict developing with the plaintiffs concerned that the 1^st defendant was continuing to run the business on her own account and interfering with the taking over by the plaintiffs.  It was unclear where fees from students were going and there was some disputeover the payment for rental of premises, the latter being resolved.

38.  On 23 April also, Dr Ng sent off to the Education Bureau Ms Luk’s letters of resignation seeking its approval of him as supervisor and manager of the schools.

39.  There is no doubt that there were some strange actions, and in some instances inactivity as far as Ms Luk was concerned which created considerable uncertainty as far as the future of the schools, the tutors and the pupils were concerned.  There were reports in various newspapers about such problems with quotations from what Ms Luk was alleged to have said to reporters. She disputes most if not all of what was attributed to her but on the strength of her own evidence, statements and contemporaneous documents I have no faith in her credibility and am inclined to accept for the most part that she was correctly quoted.

40.  However that is really a side‑issue and it is more important to see how matters developed after the plaintiffs’ solicitors’ letter of 26 April containing what has been referred to as the 16 demands.  They are no morethan the essential material to be handed over to or provided to the purchasersof such a business in order to facilitate its continuation, seamlessly if possible,although in this case not so seamlessly.  Compliance with them would in my judgment be at least implied although I am satisfied that there were oral agreements to their effect.  It would not make sense if express or implied provisions were lacking.

41.  The deadline of 30 April 2012 was repeated in that letter.  Ms Luk’s reply was unconstructive and in many respects did not make sense.

42.  The letter of 30 April 2012 from the plaintiffs’ solicitors to Ms Luk reiterated the 16 demands (in composite form) and reminded her of the need to provide an updated audit report, whereupon the balance of the purchase monies would be paid.  They sent a photostat copy of the plaintiffs’ cheque with that letter.

43.  Also on 30 April, according to Ms Luk, she signed off and dated what she erroneously called the updated report — i.e. that for the year ending 30 June 2011 — and caused her staff to notify the plaintiffs that this “updated” report was ready.  She continued to insist that this would be handed over in exchange for the cheque for the balance of the purchase money, and that after 30 April, if that exchange had not taken place, the plaintiffs were in breach of the agreement.

44.  This exchange, as she viewed it, was of course a nonsense because, as she conceded in her evidence, the plaintiffs would have wanted to consider it before making the final payment, hence the wording of the clause “an updated Audit Report will be provided before receiving the balance.”

45.  Even if one were to view her belief that the “updated report” meant that for the year ending 30 June 2011 was reasonable, therefore ignoring completely the nine months of trading immediately preceding the Agreement of 2 April 2012, she did not hand even that over.  Had she done so she would have been informed then, as she was later, what an “updated financial report” meant.  Instead she held on to the meaninglessreports, as they obviously were, in relation to the company’s financial health between 1 July 2010 and 30 June 2011.

46.  In my judgment she well knew what “updated report” meant.  It was so obvious in the context of the agreement and any businesswoman with a modicum of intelligence and experience would know this.

47.  I do not believe her.  Although it is not necessary to consider why she was behaving in this way, there are two obvious explanations: there may be more.  Either she hoped to hoodwink the plaintiffs into parting with the final payment before they had a clear picture of the company’s discouraging financial state or, she had another potential purchaser interested in relieving her of the business which she seemed to be saying had fast become a liability.

48.  On 8 May 2012 she was still writing that the “updated report” (which was patently not such) was available and demanded payment of thebalance by 5 pm on 9 May 2012.  In that context, in her written statement she included yet another nonsensical sentence:

“The defendants have done their best to prepare an audited account updated to June 2011 in order to ease any doubt and/or worry of the Plaintiff.” (emphasis added)

I have underlined that last sentence because it is clearly a concession that the plaintiffs would have concern on the financial position of the company, yet it was obvious that if the trading picture from 1 July 2011 to 30 March 2012 were not disclosed that “doubt and/or worry” would remain.

49.  In the first week of May, somewhat belatedly, the defendants started to supply the information about tutors, courses and pupils that was required from the outset and about which Ms Luk had been reminded in the letter containing the 16 demands.

50.  On 7 May 2012, Ms Luk sent the first of her letters to the Education Bureau seeking to retract her resignation letters which she had given to the plaintiffs as part of the written agreement — clause 5 of the agreement.  ‌She seemed to criticise the plaintiffs for sending these documentsto the Education Bureau but they were inevitably linked with the application by Dr Ng to the Bureau for appointment in Ms Luk’s stead and in fact sent only on 23 April.

51.  She followed up her letters with others on 23 May confirming her request to withdraw the resignation and nomination letters which she had signed on 3 April.  She was spreading confusion.  She had given no notice to the plaintiffs that she had or was about to send such letters.

52.  Correspondence meanwhile went to and fro concerning the updated audit reports.  ‌The 1^st defendant maintained her indefensible positionuntil she had available the actual updated audit report prepared by 28 May— within some 4 or 5 days she said of its being requested — and signed off by her on that day.  Even then she persisted in her stance that it would be handed over only when she had the cheque for the balance in her other hand.

53.  When Dr Ng was aware of Ms Luk’s contact with the Education Bureau withdrawing her resignation letters he immediately contacted her by faxed letter of 24 May pointing out to her that she was in breach of clause 5 of the Agreement and requesting that she immediately withdraw her cancellation letters.

54.  The Bureau itself was in a quandary and explained that it need time to obtain legal advice in order to answer the plaintiffs’ enquiry.

55.  Ms Luk, in an e‑mail of 26 May to the plaintiffs, then sought tomake the withdrawal of her recent letters of cancellation of those of 3 April, a condition of the payment of the balance which itself was to be handed over when the alleged updated report (which was then on 26 May still not in existence) was delivered to Dr Ng’s solicitors’ offices by Monday 28 May — it was not signed off until 28 May 2012.

56.  This sort of nonsense had to come to an end and on 28 May Dr Ng sent a letter to Ms Luk pointing out her unilateral breaches of clauses 2(2) and 5 of the Agreement and demanding return of the deposit and reimbursement of any of their losses, including the rent which the plaintiffs had already paid.

57.  On 31 May the plaintiffs’ solicitors issued a Writ and Statement of Claim claiming damages for rescission.  Their letter of 1 June enclosed a copy of those documents and the keys to the premises, stating that the plaintiffs had “withdrawn from all the centres.”  ‌The contract was effectively at an end, the plaintiffs having been stalled on all fronts.

THE 1^ST DEFENDANT’S CASE

58.  It is firstly necessary to deal with some aspects of this defendant’s status as she saw it, vis‑à‑vis the Education Bureau and the business(es) carried on under the aegis of Cantab Education.  ‌There are clear inconsistencies in a number of aspects of her evidence and it is difficult to see where the truth lies.

59.  At times I found her evidence inconsistent and utterly unreliable.  She was also evasive, failing on some occasions to give an answer to questions which were put to her two or three times.  Even on peripheral matters her evidence was less than credible, and the more so when I come to deal with the crucial issues.

60.  A manager under the Ordinance means “a person who is registered as a manager of the school”; a principal means a teacher who is approved (as such) under the Ordinance; and a supervisor means “(a) in relation to a school without IMC [incorporated management committee], a manager who is  – (i) approved as the supervisor of the school” under the Ordinance.

61.  In the pleaded Defence, at paragraph 14, the 1^st defendant (from now on referred to as Madam Luk) admitted that she was the registered school supervisor and school manager of all five of the Cantab schools.  She had in fact signed documents to this effect after the signing of the Agreement in accordance with clause 5 of the agreement.  Yet her evidence suggested that in practical terms she supervised and/or managed very little of the schools’ authorities and was hardly involved in its principal purpose — the tutoring of paying students.  This vital aspect was under the control of the tutors, she being merely a figurehead, according to her.

62.  She insisted that tutorial materials, timetables and syllabus material were not made available to her but were part and parcel of the tutors’ control.  Yet it is interesting to note certain clauses in a contract whereby she hired a tutor, a contract no doubt negotiated in respect of many tutors, if not all of them.

63.  The contract with Tsim Po Wan (of 23 March 2011) has a number of clauses which shed light on the nature of Madam Luk’s evidence.

64.  Tuition fees were “determined by the Company [Cantab Education Administration Limited, her company which is not incidentally a party to these proceedings] at its sole and absolute discretion and to be paid by the students to the Company ... solely for the right to attend the tutorial classes conducted at the Centre.”

65.  Clause 5.1(f) is particularly significant: the tutor shall at all times:

“... prepare suitable materials including notes and audio/video tapes if necessary for use in the Tutorial Courses and submit such materials to the Company not less than five working days before each Tutorial Course is to be conducted.”

This and other clauses such as 5.1(a) and (9) make it clear the extent to which the tutor was bound to comply with the Company’s requirements.

66.  Similarly in a contract with Leung Chung Kai, the Company was obliged, inter alia, to:

“ 5 (a)  be responsible for all general administrative matters of the Tutorial Courses ... especially the provision ofthe Tutorial Courses at the Centres and not otherwise ...

(c)  be responsible for the printing and delivery of lecture notes as instructed by the tutor ...

(g)  be responsible for the advertising, promotion and publicity of the Tutorial Courses in such manner as it thinks fit or necessary.”

67.  She denied that as supervisor or manager she would have to approve the syllabuses — she said she had never seen one in three years.  When pressed on the seeming lack of logic in her answers, she said she couldnot answer such trivial questions — “I have no knowledge of these matters.”  When reminded of the specific contractual obligation in the tutor’s contractat clause 5.1(f) to which I referred earlier, she replied that it was virtually a“dead letter” — “it was never done” — “I do not know why.”  “It did notreflect reality.”  How she could discharge her obligations under her statusas registered supervisor/manager of these schools is thus far from apparent.

68.  She contended that the plaintiffs well knew that the tutorial business was controlled by the tutors, not by the 5^th defendant company or any of the Cantab schools, and confirmed the sentence in her written statement which read, in the context of her assertion that “students data and/or information, timetable, tutorial courses and/or materials were owned or controlled by the tutors, but not by the 5^th defendant (or me, or any or the Cantab Schools),” and any discussions between the plaintiffs and the tutors concerning the continuation of the business of the schools vis-à-vis tutorial classes did not involve her:

“... comparing with the 2^nd and 3^rd plaintiffs and also the tutors, I was just an outsider (and/or an amateur operator) and at that time I only wanted to retreat and get rid of the education business. The alleged student information (or records) would be of no use to me.

...

I or the 2^nd to 5^th defendants simply did not have the alleged school information (or records) which were always in the hands of the tutors.”

and earlier:

“In fact all along, the 2^nd to 5^th defendants only had the payments records or school fees information of the students.”

This stance and these assertions are arrant nonsense as is apparent from her obligations to the Education Bureau and her belated supply of information concerning tutors to the plaintiffs.

69.  Of course the tutors, by virtue of their reputations in the tutorial world, had their following of students, and the plaintiffs would no doubt have to negotiate contracts with them for the continuation of their services to the five schools, and such negotiations would, as a matter of commercial practicality, have to take place, or at least start, before the agreement was executed.  The plaintiffs did not anticipate coming into schools devoid of tutors and pupils.  They were not buying an empty shellof a business, however unsuccessful it may have been in Madam Luk’s hands,and she well knew that at least in principle, she was selling a going concern.  Having decided to sell the business, she had sent notices of dismissal to a number of tutors, if not all of them.  ‌Some, it seems containing unsubstantiated allegations, in February but on her own version she knew the plaintiffs were negotiating with tutors for continuation of their services after 2 April2012.  Records of tutors which she affected not to know about and pretended that she did not have, were subsequently divulged.  I find that she well knew that the plaintiffs would have to have these.  She must have had them in order to identify to whom dismissed notices were to be sent at the end of February 2012.  Yet another bizarre aspect of her approach can be seen in her notice to Thomas Yan, dismissing him as CEO and Operations Director on the alleged grounds of a criminal offence of embezzlement, compounded by a conspiracy with other staff members and/or tutors to divert funds from her company.  Yet she did not seek to dismiss him fromhis employment as a tutor.  Her lame explanation, as far as she articulated it, was that the position of CEO was different from that of tutor!

70.  In my judgment her evidence was so “shot through” with contradictions and distortions that no reliance can be placed on what she had said, whether on oath in this trial, or in her written statement.

The written contract of 2 April 2012

71.  She says that there were no oral representations, terms or conditions and that the contract was the discrete, comprehensive expression of the agreement reached.

72.  As for clause 2(2), she said that she did not realise that an “updated report” meant updated to the end of the financial year 30 June 2011.  The provision for payment of the balance of the contract price meant that she was entitled to be paid it on 30 April and that the provision of the “updated report” was at most an incidental matter.  Her approach was thatshe would come along on 30 April, or on some agreed extended date, withthe “updated report” (as she understood that expression to mean) in one hand, with her other held out to take the cheque for the balance.  She seemed to modify this in her evidence by saying:

“I would provide him with an updated report and by agreement onreading this and finding it OK he would issue a cheque to me.”

73.  Whilst insisting that an updated report meant a report for the last accounting year, she had to concede that it was reasonable for the reportto be updated to the time of the agreement because the report for the previous accounting year would not show all the existing liabilities.  That was probably the only realistic concession she made and it goes to the heart of the dispute on this aspect.  Her contention was that she did not appreciatewhat an updated report meant until the letter from the plaintiffs of 23 May.  Her evidence did not make sense of a straightforward situation, and certainlynot commercial sense.  It was wholly disingenuous.  This is reinforced by the fact that although she purportedly signed off the accounts for the year ending 30 June 2011, on the 30 April 2012 — the date by which the updatedfinancial report was to be supplied to the plaintiff — ‌she made no effort to supply even those accounts, despite her alleged belief that these constitutedthe “updated report”, for several weeks thereafter.  Then, though well outof time, she sought to attach conditions to the provision of such report even though, she says, it was only on 23 or 24 May she realized that an “updated report” meant updated to 30 March 2012, to cover the nine months of business prior to the agreement.  It was prepared within a few days, according to Madam Luk and purportedly dated 28 May and signed off by her on that date.  Even then she sought to repeat her conditions for its supply — viz the handing over of the balance of the purchase monies eventhough, as she conceded in her evidence, that she knew the plaintiffs would need to consider the report.

74.  Ms Luk and her Counsel on her behalf put forward an unsustainable argument to the effect that the plaintiffs were contracting to buy only the 5^th defendant company and the assets in the various premises, not the tutorial business carried out by the 1^st to 4^th defendants.  The 5^th defendant held the tenancies of all the premises at which the five tutorialschools carried on business.  It was merely a web of corporations, all underthe control of one person, the 1^st defendant, which provided a thin veil overone reality — the educational business run by Ms Luk which she was anxiousto say she wished to get rid of and which she clearly wanted to sell, at least on 2 April to the plaintiff.  It is quite immaterial as to how the income and outgoings of the business were spread around the accounts of the various companies.  There have been too many red herrings dragged over the realityof this action which is essentially and only concerned with the crucial terms of the agreement.

75.  The acquisition of the fittings, furniture and equipment in the five schools (i.e. of the 2^nd to 4^th defendants) simply reinforces the fact that the business was being sold, not simply a company which held the tenancies of the school premises and had these as an asset — which also constituted a liability.  That liability was discharged by the 2^nd to 4^th defendant companies which received the tuition income.  So the 5^th defendant was dependent on those other companies for the income — and thus to meet the offloaded rental liabilities arranged by the 1^st defendant with her web of companies.

76.  What was the point of the plaintiffs buying the company which held the tenancies and buying all the assets in the premises unless they were going to run a fully functional tutorial establishment?  She well knew what the agreement was concerned with and her arguments, such as they were, were spurious.

CONCLUSIONS AND FINDINGS

77.  Clause 2(2) of the agreement is very clear.  The defendants have to provide an updated audit report before the payment of the balance is done.  Updated means updated to the date of the Agreement or to as near to that date as is reasonable and acceptable.  The defendants failed to do so.  They are in breach of that term of the agreement.  I do not need to rehearsethe history of the arguments advanced by Ms Luk.  They are unacceptable.

78.  There were, as I find, clear undertakings or promises by the 1^st defendant to provide all the necessary information, and efforts to make the plaintiffs to take over the business as a going concern.  Again I have set out the arguments in relation to this entirely necessary exercise.  It would be nonsense to suggest that the plaintiffs expected to take over a business devoid of the goodwill and information and cooperation necessary to enable them to continue the business.  To suggest that the plaintiffs were happy to take over the liabilities of the business without acquiring the source of the income to make the business viable is unreal.

79.  In her own pleading Madam Luk, at paragraph 7(e), accepted that the plaintiffs were effectively seeking to take over the business of running the schools:

“In or about late March 2012 ... the Plaintiffs already had private agreement and/or arrangement with the tutors and/or staff then serving the Cantab Schools.”

She may not have been entirely right but from this it is clear that she knew they wanted to take over a going concern.

80.  And in paragraph 7(f) she effectively repeated this:

“The Plaintiffs were to operate the School premises on their own due to their own private agreement and/or arrangement with the said tutors and/or staff.”

81.  The defendants, effectively Ms Luk, undertook to provide letter of resignation and nomination so as to enable the plaintiffs to obtain approvalof the Education Bureau to run the tutorial establishments.  These were essential.  The plaintiffs properly submitted these to the Bureau.  When the 1^st defendant, Ms Luk, unilaterally, without warning or notice to the plaintiffs, wrote to the Bureau on 7 May 2012 withdrawing or cancelling her letters, that was a clear breach of the Agreement.  It became an obstacle for the plaintiffs.  They could not hope to run the tutorial business if the Bureau did not register Dr Ng as manager and supervisor.  Ms Luk’s explanation for her action, that she wanted to protect her position is, again, a nonsense.  She was already in continuing breach of clause 2(2) and this action on her part simply compounded her breach and added to the plaintiffs’ obstacles.

82.  She extended this problem by re‑affirming her action of 7 May by writing letters on 24 May to the Bureau, confirming her stance.  The plaintiffs were unaware of what she was doing, behind their backs, until 24 May.  She then tried to make the reversal of her action, itself a clear breach of the agreement, dependent upon her receipt of the cheque for the balance of the purchase money when she handed over an “updated report” which even then was not updated and was in any event long overdue.

83.  The effect of those breaches was to render the plaintiffs’ desire to purchase the business as fraught with risk — no updated report by which to measure the financial liability of the 5^th defendant and the business (the five tutorial establishments), the withdrawal of the letters of resignation and nomination, and the delay in providing information to enable the business to be run as a practical proposition.  These were fundamental breaches.

84.  For all these reasons the 1^st defendant was in breach of the agreement and each breach compounded the others.  The breach of clause 2(2) was the overriding one followed by that of clause 5 which created, quite unnecessarily, considerable difficulty and uncertainty. These breaches were a repudiation of the contract.

85.  Accordingly I find that the plaintiffs were entirely justified in terminating the contract.  When the updated audit report was supplied, afterthe defendants’ repudiation, the termination of the contract and the commencement of proceedings, it was of no consequence.  There will be judgment for the plaintiffs, and the defendants’ counterclaim, which in any event is almost wholly devoid of documentary support, is dismissed.

THE PLAINTIFFS’ CLAIM FOR DAMAGES

86.  With the exception of the claim for loss of earnings or fee for the 2^nd plaintiff ($320,000 over a 6 to 8 week period), there is clear evidence which I accept and the defendants in effect concede as valid once the plaintiffs have established their case.  The fee referred to is somewhatspeculative given the vagueness, in the first year at least, of any profit which could produce such a fee.

87.  The amounts validly claimed which I award as damages are:

(1)  The return of $1 million being the first instalment of the purchase price.

(2)  The sum of $911.712.24 being the rental in respect of the premises in April and May 2012.

(3)  The sum of $274,659.54 being the costs/payments of the schools/‌business in April and May 2012 during which time of course the 1^st defendant had effectively reinstated herself as director/manager/principal of the schools and effectively running the business on a “meddling” basis.  The plaintiffs (or any one of them) had not registered themselves as the shareholders of the 5^th defendant.

88.  The plaintiffs abandoned their claim for lost of profits.

89.  There will therefore be judgment for the plaintiffs for the sum of $2,186,371.78 together with costs, to be taxed if not agreed.

90.  The defendants’ counterclaim is dismissed with costs, to be taxed if not agreed.