Tang Chung Wah Aka Tang Chung Wah, Alan and Another v. Jonathan Russell Leong and Others
Read the full judgment text of HCA 1691/2011 on BabelCite. This High Court CFI judgment was delivered on 19 January 2016.
1. The 1 st and 2 nd plaintiffs, the 1 st to 9 th defendants and Mr Paul Chow were equity partners of an accounting firm formerly known as Grant Thornton (“GTHK”), which changed its name to JBPB & Co (“JBPB”) on 10 December 2010.
Cited by 9 cases · Cites 3 cases
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HCA 1691/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1691 OF 2011 _______________
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____________________ J U D G M E N T ____________________ INTRODUCTION 1.The 1st and 2nd plaintiffs, the 1st to 9th defendants and Mr Paul Chow were equity partners of an accounting firm formerly known as Grant Thornton (“GTHK”), which changed its name to JBPB & Co (“JBPB”) on 10 December 2010. 2.In this judgment, unless the context indicates otherwise and where appropriate:-
3.The rights and obligations of the Partners were governed by, inter alia, a partnership deed dated 1 October 2001 (“the Partnership Deed”). 4.On 16 November 2010, the Partners entered into a Deed of Termination (“the Termination Deed”), under which it was agreed that GTHK would be closed for new business with effect from 31 December 2010. 5.Central to the present partnership dispute is the difference in opinion between the plaintiffs and the defendants on whether to pursue various litigations against a number of third parties. In broad terms, the plaintiffs wanted to pursue the litigations while the defendants wanted to settle. Eventually, the defendants, in the name of the Partnership, settled the litigations. 6.The third parties with whom the Partnership was then in litigation included:-
7.As mentioned in the opening submissions of Mr Patrick Siu (for the plaintiffs) dated 3 August 2015, the plaintiffs have raised a total of six claims against the defendants in this action, namely:-
8.On the other hand, in the defendants’ counterclaim against the plaintiffs, the defendants have raised the following complaints against the plaintiffs:-
9.For the purpose of resolving the aforesaid issues, the parties have prepared an “Agreed List of Issues” dated 14 August 2015. In addition, the plaintiffs have prepared a document entitled “The Plaintiff’s List of Issue” also dated 14 August 2015 containing three additional issues. Before I turn to address the various issues set out in the two lists of issues, I shall first give a brief outline of the relevant background facts. 10.At this juncture, I should mention that although the parties have raised numerous factual disputes and produced voluminous documents at the trial (a matter which I shall return to later in this judgment), I do not consider it necessary to resolve all those factual disputes for the purpose of resolving the issues set out in the two lists of issues. In this judgment, I shall focus on the factual disputes which I consider are essential for reaching proper conclusions on those issues. 11.Also, in view of the voluminous documents produced and the length of the statements of the witnesses, it is not possible to set out and analyse in this judgment all the oral and documentary evidence which may be said to have some relevance to the issues to be resolved. What I have done is to concentrate on what I regard as being the significant evidence which is directly relevant to those issues. The fact I have not set out or deal with any part of the oral or documentary evidence adduced in this action does not mean that I have not considered such evidence. It only means that I consider that such evidence does not add anything of substance or I am not prepared to give weight to such evidence for the purpose of resolving the issues. BACKGROUND FACTS (i) The Partnership 12.The Partnership had been providing accounting services since the late 1940s. Its partners and staff practised and provided certified public accounting services to clients based in, amongst other places, Hong Kong and the PRC. The Partnership previously practised under the name of Byrne & Co. In 1992, it changed its name to Grant Thornton Byrne, and in 1996 it further changed its name to Grant Thornton (ie GTHK). 13.By 2005, the Partnership had practical and exclusive control of the accounting business conducted under the name of “Grant Thornton” in Hong Kong and the PRC through the Partnership’s affiliated firms in Beijing, Shanghai, Guangzhou and Shenzhen. 14.The Partners were at all material times bound by the terms of the Partnership Deed. For the purpose of this judgment, it is necessary to refer to only a few clauses of the Partnership Deed. 15.Clause 11(1) of the Partnership Deed provides that each of the Partners shall, so long as he is a Partner:-
16.Clause 11(3)(a) of the Partnership Deed provides (inter alia) that no Partner shall contrary to any direction given from time to time either specifically or generally by the Partners in general meeting transact any business on behalf of the Partnership or have any dealings with any person on behalf of the Partnership. 17.Clause 11(5) of the Partnership Deed provides that each Partner shall upon reasonable request being made to him by any Partner inform the other Partners of all documents and other things which shall come into his possession or to his knowledge concerning the Partnership or its affairs. 18.Clause 13, under the heading “General Meetings”, provides (inter alia) as follows:-
19.Lastly, clause 19 of the Partnership Deed provides that it shall be governed by and construed in accordance with Hong Kong laws. 20.Between 1 April 2008 and October 2010, the 1st defendant (Mr Jonathan Russell Leong) was the Managing Partner of GTHK. He was succeeded by the 7th defendant (Mr Patrick Rozario), who is currently the Chief Executive Officer of JBPB. 21.Between 2007 and 2010, the Partnership had a number of “salaried partners”, including the Ex-MR Partners who joined the Partnership on 1 July 2007. 22.Until November 2010, the Partnership had been the Hong Kong member of the GT Network. 23.Under a “Member Firms Agreement” dated 1 July 2007 between GTIL and the Partnership and a “name use agreement”, the Partnership had the exclusive right within the GT Network to operate and use the name “Grant Thornton” in both Hong Kong and the PRC. (ii) Relationship with GTUS and GTIL 24.In or around late 2005, senior management from GTIL and GTUS approached the Partnership about forming a joint venture for capturing the opportunities for business growth in the PRC. 25.In or around February 2006, a 5-year business plan was drafted by the Partnership (with input from GTUS) that, among others, called for the creation of Grant Thornton China Management Corporation (“GTCMC”) as one component of the joint venture. GTCMC’s equity was owned as to 80% by GTUS and 20% by the Partnership. 26.The said business plan:-
27.In December 2006, Mr Stephen Chipman of GTUS was appointed Chief Executive Officer of GTCMC. He was seconded to the Partnership by GTUS for this appointment. He represented GTUS (and GTIL) in the PRC and in dealing with the Partnership. 28.By late 2007, a new company in the PRC, Grant Thornton China CPA Limited, was set up for the five then existing local firms of the PRC platform (established by the Partnership) to amalgamate to become the enlarged GT China operations (“the Former GT China Platform”). 29.In January 2008, a loan agreement was entered into between GTCMC (effectively acting for GTUS) and the Partnership. It was the mechanism by which investment from GTUS would be disbursed to the operating joint venture in the PRC through the Partnership. 30.In August 2008, GTIL, GTUS and the Partnership finalised their plans for the joint venture by entering into a memorandum of understanding. 31.Mr Chipman had his veto power under the loan agreement and the structure of GTCMC to influence the Partnership’s managerial decision-making within the joint venture. GTCMC shareholder decisions were also subject to GTUS control. 32.In January 2009, Zhonghua CPA was admitted as a Shanghai-based member firm of GTIL in the PRC. 33.From around February 2009, Mr Alex MacBeth was sent by GTIL to monitor the operations of the Partnership. 34.In March 2009, GTIL threatened to expel the Partnership from the GT Network immediately, imposing a condition that the 1st plaintiff be removed as a partner if the Partnership was to remain in the GT Network. Eventually, the 1st plaintiff entered into negotiation with GTIL, and in June 2009, GTIL removed the threat of expulsion. 35.In October 2009, Jingdu, a Beijing-headquartered accounting firm, became the second Grant Thornton member firm in the PRC. 36.As a result of the above, Grant Thornton China CPA Limited and the Former GT China Platform were restructured. 37.In August 2010, the Chief Executive Officer of GTIL (Mr Nusbaum) visited the PRC and met with representatives from Jingdu, the Ex-MR Partners, and the Ministry of Finance to discuss Grant Thornton’s operations in the PRC and the possible award of an H-share audit licence prior to the year-end “deadline”. GTUS and GTIL then resolved to expel the Partnership from the GT Network. Ten non-negotiable conditions were set for the Partnership to remain within the GT Network. 38.On 20 September 2010, GTIL gave the Partnership six months until March 2011 to leave the GT Network. Three weeks later, GTIL announced the appointment of Jingdu Tianhua Hong Kong as the new Hong Kong member firm of GT Network, headed by the Ex-MR Partners. 39.In October 2010, the 1st plaintiff and the 4th defendant on behalf of the Partnership met with representatives from GTIL and GTUS in London to try to salvage the GT membership or alternatively to work out amicable “exit” arrangements. At the meeting GTIL suggested that unless the following three issues were resolved, GTIL would issue an immediate official announcement of the Partnership’s expulsion:-
40.In respect of these matters:-
41.Despite the above, on 22 November 2010, GTIL issued another notice to the Partnership to expel it from the GT Network with immediate effect from 23 November 2010. As a result of the expulsion of the Partnership from the GT Network, the Partnership changed its name to “JBPB & Co” with effect from 10 December 2010. (iii) Litigations with third parties 42.The Partnership was involved in litigations with a number of parties, including the following:-
(iv) The Termination Deed 43.The Termination Deed dated 16 November 2010 was entered into between the plaintiffs, the defendants and Mr Paul Chow to deal with issues relating to, among others, the transfer of the business and the winding down of the Partnership. 44.Under the Termination Deed:-
45.The following provisions of the Termination Deed are relevant for the present purposes. 46.By clause 6.1, the Partners agree that the business of the Partnership shall so far as practicable continue to operate on a normal basis up to the “Cessation Date” (defined to mean the latter of the “BDO Transfer Date” or the “RII & CF Transfer Date”). As such:-
47.By clause 6.2, the Partners agree that:-
48.A “Partnership Closure Committee”, which replaced the previous “Management Committee” of the Partnership, was also set up pursuant to clause 6.2(g) of the Termination Deed. 49.Clause 7 of the Deed of Termination provides as follows:-
50.The following matters are listed in Schedule 5 to the Termination Deed:-
(v) Settlement of third party litigations 51.On 22 June 2011, the 2nd and 7th defendants went to London for settlement negotiations on behalf of the Partnership with GTIL and reached what has been referred to as the “Framework Agreement”, under which they agreed to resolve their claims against each other (and some other claims) on a “drop hands” basis. Further, although this global settlement did not involve GTUS, the 2nd and 7th defendants were given to understand that GTIL also expected the Partnership to settle their differences with GTUS. 52.Upon their return to Hong Kong, the 7th defendant convened a partners’ meeting on 27 June 2011, at which the defendants voted in favour of a “drop hands” proposal for settling the Partnership’s disputes with GTIL, the Ex-MR Partners, USL and Jingdu. The plaintiffs were absent from the meeting, while Mr Paul Chow abstained from voting on that proposal. 53.By emails dated 1 and 2 July 2011 (Hong Kong time) respectively, the 7th defendant gave instructions to the Partnership’s lawyers in the US (“Salans US”) not to file any defence or counterclaim against GTUS in the GTUS Action. The deadline for the Partnership to file its defence and counterclaim expired on 1 July 2011 (US time). As a result of protests from the 1st plaintiff, an “Answer with Affirmative Defence” dated 1 July 2011 was eventually filed on behalf of the Partnership in the GTUS Action prior to the said deadline. 54.By an email dated 21 August 2011, the 7th defendant gave instructions to the Partnership’s lawyers in the UK (“Salans UK”) not to file any counterclaim against GTIL in the GTIL Arbitration. In view of the opposition of the 1st plaintiff to this course of action, Salans UK ceased to act for the Partnership on or about 24 August 2011. The plaintiffs and Mr Paul Chow (represented by Rosenblatt) and the 1st to 6th, 8th and 9th defendants (represented by Hart Giles) then became separately represented in the GTIL Arbitration. Rosenblatt and Hart Giles each filed a defence and counterclaim on behalf of their respective clients on 7 September 2011 in the GTIL Arbitration. In the counterclaim filed on behalf of the plaintiffs and Mr Paul Chow, they claimed against GTIL for substantial loss and damage in an amount to be assessed as well as repayment of the Permanent Contribution. On the other hand, in the counterclaim filed on behalf of the 1st to 6th, 8th and 9th defendants, they claimed against GTIL only for an account of the Permanent Contribution paid by the Partnership to GTIL and payment of such sums as might be found due upon the taking of such account or, alternatively, damages. 55.The defendants, purporting to act on behalf of the Partnership, entered into a “Settlement Deed” dated 28 September 2011 with GTIL, the Ex-MR Partners, USL and Jingdu, to settle the litigations amongst them (referred to in paragraph 42(1) and (2) above) on a drop hands basis, save that the Partnership was to pay Jingdu a sum of HK$1.5 million under clause 2.1.1 thereof. The settlement was reached after a mediation which took place in Hong Kong lasting some 19 hours. I shall come back to the rationale behind the Partnership’s agreement to pay Jingdu the sum of HK$1.5 million later in this judgment. 56.Clause 8.1 of the Settlement Deed expressly provides that completion of the deed is conditional upon satisfaction of (inter alia) the following condition, namely, confirmation in writing to the other parties by GTIL of receipt of a copy of the minutes of a duly convened meeting of the Partnership and such minutes must show that (i) the requisite quorum of partners were present; (ii) the execution and delivery by the Partnership of the Settlement Deed was approved by the requisite number of partners to constitute a binding decision of the Partnership; and (iii) the partner executing the Settlement Deed on behalf of the Partnership was given express authority to do so with the intention that the Partnership be bound by the terms of the deed. 57.On 2 October 2011, the 7th defendant called a partners’ meeting on 7 October 2011 to discuss, inter alia, whether the Partnership should enter into the Settlement Deed which had been executed by the defendants. 58.On 6 October 2011, the plaintiff obtained an ex parte injunction from Saunders J restraining the defendants from voting at the partners’ meeting on 7 October 2011 in respect of the proposed settlement with the third parties and executing any settlement agreement involving the third party litigations. 59.On 26 October 2011, the plaintiffs served notices on the counter-parties to the Settlement Deed, stating therein that the defendants did not have authority to enter into the Settlement Deed on the Partnership’s behalf. 60.On 27 October 2011, the plaintiffs were granted leave by Deputy High Court Judge Lok (as he then was) to withdraw their application for injunction against the defendants. 61.On the same day (ie 27 October 2011), the Partnership resolved at a partners’ meeting (with the plaintiffs and Mr Paul Chow being absent) to approve the terms, execution and delivery of the Settlement Deed. 62.On 4 November 2011, Hart Giles endorsed consent orders on behalf of the Partnership to dismiss the following proceedings in Hong Kong, namely, HCA 1126/2010 and HCA 735/2010 (consolidated), HCA 1873/2010 and HCMP 1284/2011, between the Partnership on the one hand, and the Ex-MR Partners/USL/GTIL on the other. 63.On 16 December 2011, the plaintiffs served a notice on GTUS, stating therein that the defendants did not have authority to enter into settlement with it on the Partnership’s behalf. 64.On 23 December 2011, at a meeting of the Partners, it was unanimously agreed by those partners present (ie the defendants) to appoint the 7th defendant to sign an agreement with GTUS to settle the GTUS Action. 65.On 17 January 2012, the 7th defendant purporting to act on behalf of the Partnership entered into a settlement deed with GTUS to settle the GTUS Action. 66.On 26 March 2012, the arbitral tribunal in the London arbitration delivered an award (“the Final Award”) whereby it ruled, inter alia, that the defendants had lawful authority to enter into the Settlement Deed on behalf of the Partnership which precluded the plaintiffs from continuing their claims against GTIL and, as a result, terminated the arbitration and the counterclaim of the Partnership against GTIL in the arbitration. 67.On 30 April 2012, Au J granted ex parte leave for GTIL to enforce the Final Award in Hong Kong in HCCT 13/2012. 68.On 8 June 2012, Deputy High Court Judge Lok dismissed the plaintiffs’ application for (i) a declaration that Hart Giles had no authority to act on behalf of the Partnership in HCA 1126/2010 & HCA 735/2010 (consolidated), HCA 1873/2010 and HCMP 1284/2011, and (ii) an order to set aside the consent orders filed by Hart Giles in those proceedings. 69.On 14 November 2012, the plaintiffs’ application to set aside the Final Award was dismissed by Hildyard J sitting in the Chancery Division of the English High Court. 70.On 5 April 2013, Au J set aside the ex parte leave granted on 30 April 2012 in HCCT 13/2012 but re-granted leave for GTIL to enforce the Final Award in Hong Kong. Issue 1.1 oF Agreed List of Issues: Have D1, D4 and D7 acted in breach of the Partnership Deed, the Deed of Termination and their fiduciary duties by failing to disclose the documents and information under clause 7.2 of the Deed of Termination? 71.As a matter of general law, a partner is under a duty to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives (section 30 of the Partnership Ordinance, Cap 38). 72.In relation to the present complaint which concerns the documents and information referred to in clause 7.2 of the Termination Deed, it is specifically provided that:-
73.It may be noted, at the outset:-
74.It is accepted by the 1st, 4th and 7th defendants that they were in “technical” breach of clause 7.2 of the Termination Deed, in that the relevant disclosure or account were only made or rendered on 31 January 2012, which was more than one year after the agreed deadlines on 31 December 2010/31 January 2011 (as applicable): see the closing submissions of Mr Jonathan Chan (for the defendants). 75.On the question of the completeness of the disclosure, in so far as the Partnership minutes and minutes of the Management Committee/LB meetings required to be produced under clause 7.2(a) of the Termination Deed are concerned, the 7th defendant’s evidence is that the relevant documents were produced on 31 January 2012. From the description of the minutes given in the index enclosed with JBPB’s letter dated 31 January 2012 to (inter alia) the plaintiffs making the disclosure, it would appear that the minutes produced (covering a period of time prior to 1 April 2008) went further than what was strictly required under clause 7.2(a) of the Termination Deed. 76.The 7th defendant was not seriously challenged by Mr Siu in his cross examination on the completeness of the disclosure. Indeed, in Mr Siu’s closing submissions for the plaintiffs, Mr Siu has not sought any order against the 1st, 4th or 7th defendants to compel them to make any further disclosure of documents under clause 7.2(a) of the Termination Deed. 77.In so far as the 1st defendant’s duty to render a full account of the matters outlined in Schedule 5 to the Termination Deed under clause 7.2(b) of the Termination Deed is concerned, the plaintiffs contend that the disclosure made by the 1st defendant on 31 January 2012 was incomplete. In particular, at paragraph 32d and e of the 1st plaintiff’s first witness statement (which he adopted as his evidence in chief) the 1st plaintiff complains that the 1st defendant failed to disclose emails between the 1st defendant and parties such as Gabriel Azedo, the Ex-MR Partners, GTIL and GTUS relating to the admission of the Ex-MR Partners into the Partnership and the PRC business plan. The 1st defendant did not give evidence at the trial, and thus there was no direct answer given by the 1st defendant to the 1st plaintiff’s complaint. 78.In all, on the existing evidence, I find that:-
Issue 1.2 oF Agreed List of Issues: Have D2, D3, D5, D6, D8 and D9 acted in breach of the Partnership Deed, the Deed of Termination and their fiduciary duties by refusing or failing to take any step to cause or procure D1, D4 and D7 to comply with their duties under 1.1 and thereby supporting or condoning the breaches of duties by D1, D4 and D7? 79.The plaintiffs’ complaint is that none of the 2nd, 3rd, 5th, 6th, 8th and 9th defendants took any steps to cause or procure the 1st, 4th and 7th defendants to comply with their respective disclosure obligations. The plaintiffs also complain that they sided with the 1st, 4th and 7th defendants, and jointly instructed J S Gale & Co to issue a letter dated 12 August 2011 which contended that the ability of the 1st, 4th and 7th defendants to make disclosure was hampered by the 1st plaintiff. 80.I do not consider that the 2nd, 3rd, 5th, 6th, 8th and 9th defendants are under any obligation to pro-actively cause or procure the 1st, 4th and 7th defendants to comply with their respective disclosure obligations under clause 7.2 of the Termination Deed. None of the matters relied upon by the plaintiff can begin to make out any case of breach of obligations on the part of the 2nd, 3rd, 5th, 6th, 8th and 9th defendants. I therefore reject the plaintiffs’ claim against them under this head. Issue 1.3 oF Agreed List of Issues: If the answer to 1.1 and/or 1.2 is in the affirmative, what is the remedy? 81.On the question of relief, the plaintiffs have not shown or proved that they have suffered any loss or damage, or quantified any alleged loss or damage, arising from the 1st, 4th and 7th defendants’ breaches of clause 7.2 of the Termination Deed. Also, the plaintiffs have not applied for, or obtained, any order from the court for a split trial of liability and quantum. I am not prepared to make any order for separate assessment of equitable compensation or damages (if any). 82.In Mr Siu’s closing submissions, he submits that where there is a technical breach of liability with no loss, or where the fact of a loss is shown but the necessary substantiating evidence is not given, the court can award nominal damages. As a matter of principle, this is correct. I order the 1st, 2nd and 7th defendants each to pay nominal damages of HK$10 to the plaintiffs for their breaches of clause 7.2 of the Termination Deed. 83.The plaintiffs also seek an order against the 1st defendant to require him to render to the plaintiffs a full account of all matters outlined in Schedule 5 to the Termination Deed pursuant to clause 7.2(b) thereof in such manner and format reasonably acceptable to the plaintiffs. I consider that it would be sufficient in the circumstances to order the 1st defendant to file and serve an affidavit, within 28 days from the date of this judgment, to (i) confirm the disclosure previously made in the letter dated 31 January 2012, (ii) address the 1st plaintiff’s complaints at paragraph 32d and e of his first witness statement, and (iii) disclose such further information and documents (if any) for the purpose of fully complying with his obligation under clause 7.2(b) of the Termination Deed. I also give liberty to the parties to apply for further directions and relief (if so advised) arising out of the affidavit to be made by the 1st defendant. ISSUE 2.1 O F Agreed List of Issues: Have Ds acted in breach of the Partnership Deed, the Deed of Termination and their fiduciary duties by D7 instructing the Partnership’s UK lawyers on 21 August 2011 not to file any counterclaim against GTIL in the London arbitration? 84.As earlier mentioned, originally on 20 September 2010 GTIL gave 6 months’ notice to the Partnership to leave the GT Network on 23 March 2011, pursuant to clause 6.8(b)(ii) of the Member Firms Agreement. However, on 22 November 2010, GTIL issued another notice to the Partnership to expel it from the GT Network with immediate effect as from 23 November 2010. The latter notice was apparently issued pursuant to clause 6.8(b)(i) of the Member Firms Agreement, and superseded the earlier notice. 85.Clause 6.8(b) of the Member Firms Agreement states, inter alia, as follows:-
86.The counterclaim in question relates to the alleged damage to the Partnership’s practice arising from its expulsion from the GT Network, including loss of goodwill, loss of investment in its China platform and the China practice, and the loss of profits that the Partnership might have expected to receive from its Hong Kong and China practices. According to the 7th defendant, it was the 1st plaintiff’s intention to claim losses totalling some HK$310,000,000, comprising a claim in the amount of HK$40,000,000 for the Partnership’s loss of “investments in its China Platform” and HK$270,000,000 for the Partnership’s loss of “the established Hong Kong accounting practice which it had built up over a period of 60 years.” 87.The validity of a counterclaim of this magnitude would depend on the Partnership being able to establish (inter alia) that GTIL had no right to expel the Partnership from the GT Network at all, whether summarily or on 6 months’ notice. If GTIL was entitled to expel the Partnership from the GT Network by giving 6 months’ notice (but not summarily), the quantum of the Partnership’s counterclaim would plainly be much reduced. 88.Although both the plaintiffs and defendants considered that GTIL did not have sufficient grounds to expel the Partnership summarily form the GT Network, there were different views on whether GTIL was entitled to expel the Partnership from the GT Network by giving 6 months’ notice. 89.Further, even if the Partnership could establish that GTIL had no right to expel the Partnership from the GT Network at all, there was still the issue of the actual loss or damage which might have been suffered by the Partnership in consequence of its expulsion from the GT Network, in respect of which the defendants and the plaintiffs also held different views. 90.The action taken by the defendants complained of by the plaintiffs under this head (namely, the giving of instruction by the 7th defendant to the Partnership’s UK lawyers not to file any counterclaim against GTIL in the London arbitration) cannot, in my view, be looked at isolation or solely from the point of view of the merits, or perceived merits, of the counterclaim. This is because it is apparent from the evidence of the 7th defendant that the defendants’ decision to instruct the Partnership’s UK lawyers not to file any counterclaim against GTIL in the London arbitration was very much influenced by their wish to achieve an overall settlement of all disputes between (inter alia) the Partnership and GTIL. The defendants’ wish to settle was in turn the result of a combination of factors, including:-
(i) The dire financial situation of the Partnership and the escalating legal costs 91.In an email sent by the 1st plaintiff to the other partners dated 27 April 2011, the 1st plaintiff stated that “[b]efore providing for legal and other professional fees and on-going costs and expenses, we will be HK$32M short to repay the banks” and “[w]e cannot exhaust the funds to repay the banks in May. Hence, the banks may start calling loans in probably two weeks’ time. SO, BE PREPARED TO MEET A CAPITAL CALL AT SHORT NOTICE TO CONTRIBUTE YOUR SHARE OF THE FUNDS AS AN EQUITY PARTNER.” 92.In an email from the 7th defendant to the other partners dated 19 May 2011, the 7th defendant reported that he had met two of their bankers (HSBC and BEA) on 18 May 2011 to discuss the repayment schedule. It would appear that the Partnership was at that time indebted to HSBC for about HK$14.4m (with HK$6m due in May and HK$8.4m due in July), to BEA for about HK$13.9m (with HK$2.5m due in May, HK$2.5m due in June and HK$8.9m due in July), and to DBS for an unspecified amount, and the 7th defendant had made certain proposals to the banks at the meeting for repaying the outstanding loans by instalments. The 7th defendants ended the email by stating that “[w]e only have about HK$1.2m (approx.) in the banks, please try very very hard to recover outstanding receivable, we are running out of money.” 93.In the 1st plaintiff’s reply dated 19 May 2011 to the 7th defendant’s aforesaid email, the 1st plaintiff disagreed with the 7th defendant’s proposal to make some repayments to the banks in May on the ground that “we have litigation on-going in HK, the US and the UK” and the lawyers “do NOT work on a pro bono basis – they have to be paid to work, otherwise our legal cases will collapse immediately.” The 1st plaintiff ended his email by stating “[w]e need a capital call for at least HK$10M immediately if anyone wants to pay the banks and if BDO still insists to sit on our funds.” 94.On the other hand, the 2nd plaintiff, in her reply dated 19 May 2011 to the 7th defendant’s aforesaid email, stated that “it is rather difficult to raise new funding from banks and any other sources and we should try our best to postpone repayment to banks since their officers are all fully aware of our current situation”. 95.The dire financial situation of the Partnership is further evidenced by the 1st plaintiff’s own email to the Partnership’s lawyers on 4 June 2011, which stated as follows:-
96.In so far as legal costs are concerned, an estimate of what might be incurred in the various litigations with third parties appeared in J S Gale & Co’s letter to ONC Lawyers dated 12 August 2011: the total “own” costs for the MR Litigation, GTIL Arbitration and GTUS Action came to HK$36,061,300, and the total exposure of liabilities for the costs of the counterparties came to HK$25,509.040. 97.It is clear, from the above emails, that the Partnership did not have sufficient liquid funds to repay existing bank loans, not to mention extra funds to finance litigations against GTIL and others. 98.The Partnership’s financial position was not helped by the fact that, apparently, none of the Partners deposited monies received in respect of WIPs into the Partnership’s bank accounts. Also, none of the Partners made any fresh capital contribution into the Partnership. This is hardly surprising, in view of the serious internal conflicts and mistrust amongst the Partners at that time. (ii) Quantum of the counterclaim 99.In relation to the loss or potential loss suffered by the Partnership consequent upon its expulsion from the GT Network, the 7th defendant’s evidence is that:-
(iii) Legal advices on the merits, or lack of merits, of the counterclaim 100.In relation to the merits, or lack of merits, of the counterclaim, the Partnership obtained preliminary advices from Tanner De Witt (which advised the Partnership from the time of the expulsion to around mid-January 2011) and from Salans UK (which represented the Partnership in the London arbitration until they resigned on or about 24 August 2011). 101.In an advice given on 26 November 2010, Tanner De Witt stated that “on the material we have seen to date, we do not think the partners of GTHK have much chance of success in future claims against GTIL (although there may be more chance of success in claims against the MR Partners, which the partners would have to drop if the Settlement Agreement was signed), while GTIL might be able to bring claims against the partners of GTHK in relation to the BDO press releases and SCMP articles”. 102.In a further advice given on 16 December 2010, Tanner De Witt stated that “while we have been able to raise some arguments as to why JBPB should not be seen as being in breach of its contractual arrangements with GTIL, the range of potential breaches is so wide that it is likely that JBPB would be found to be in breach on at least one point, and therefore face a range of penalties that could include forfeiture of its Permanent Contribution, liability for a Termination Payment, liability for a contractual financial charge and/or a contractual indemnity, liability for damages for breach of contract and GTIL choosing to enforce certain commercial rights that it or its related entities may have against JBPB outside of the framework of the [Member Firms Agreement]”, and that “… given the range of possible breaches, it would be prudent to assume that if the matter goes to arbitration and/or litigation, a breach will be found” (which would justify immediate expulsion under the Member Firms Agreement). 103.In an email dated 18 August 2011 from Smeetesh Kakkad, a partner of the Dispute Resolution Group of Salans UK, to the 1st plaintiff and the 7th defendant, it was stated that “[w]hilst I can give no guarantees, there certainly are reasonably good grounds for challenging the actions of GTI in the manner in which it expelled [the Partnership] from the network … This would give grounds not only to defend the claims that GTI has brought in the arbitration, on the basis the expulsion was unlawful, but also to counterclaim for losses suffered by JBPB as a result of that wrongful expulsion”. 104.However, in the same email, Smeetesh Kakkad qualified the above statement by making it clear that they had only heard the Partnership’s side of the story but did not yet have GTIL’s full position in relation to the Partnership’s allegations, and therefore their assessment was limited and subject to further review and consideration. 105.Significantly, the email from Smeetesh Kakkad also stated that “I do have some doubt about the value that has been put on the counterclaim … Can it really be said that the full value of your investment and two years’ business has been lost? Presumably, as a group, you were able to take a lot of clients and work whilst operating as GTHK. Moreover, at least some of you presumably will have found new opportunities at your new firms. The manner in which the counterclaim has been valued to date may be too simplistic, and it does need further consideration, in particular the value of your collective practices since the expulsion”. The email concluded with the advice to continue the counterclaim, which it was said had “reasonable prospects of success, based on our instructions to date, and at a minimum should improve the prospects of any settlement.” 106.Smeetesh Kakkad expressed the concerns about the quantum of the proposed counterclaim more directly in a further email dated 22 August 2011, in the following terms: “… I have already raised concerns about the quantum of any counterclaim. I believe to claim a loss representing the whole of your investment and two years’ loss of revenue does not reflect the actual loss you have suffered. If you all took your clients and business with you to your respective new firms, that would not be a realistic basis upon which to value the counterclaim.” 107.It would appear, therefore, that the Partnership received inconsistent preliminary advices on whether GTIL was entitled to expel the Partnership summarily and, in any event, upon 6 months’ notice. On the other hand, the Partnership’s UK lawyers plainly had great reservation on the quantum of the Partnership’s proposed counterclaim. (iv) The issue of indemnity 108.It will be recalled that under clause 7.1 of the Termination Deed, if a minority of the Partners wish to pursue or continue proceedings relating to (inter alia) GTIL in the name of GTHK or the Partnership, the Partners agreed to “take all steps reasonably necessary to allow [the minority partners] to do so … subject always to [the minority partners] being solely responsible for all costs and liabilities relating to any such litigation (and sharing the rewards if any of the litigation), and [the minority Partners] indemnifying and holding harmless the other Partners on terms reasonably acceptable to the Indemnified Partners (acting at all times reasonably, with a view to permitting such litigation to occur, and so that such indemnity shall not extend beyond indemnification for the consequences of such litigation being undertaken had they agreed to such litigation or remained Partners of GTHK) prior to any such litigation being pursued or continued” [underlining added]. 109.On 6 December 2010, the 4th defendant sent an email to the 1st plaintiff and others and asked for a proposal on the terms of the indemnity to be offered by those partners who wished to pursue litigations against (inter alia) GTIL. In his reply dated 7 December 2010, the 1st plaintiff said that the onus was on those wishing to resign to propose “reasonable terms for an indemnity from those who wish to fight, not the other way round”. 110.In a further email dated 8 December 2010, the 4th defendant stated that the indemnity should be supported or backed up by “real assets”. This was met by the 1st plaintiff’s response, in an email also dated 8 December 2010, that those favouring a settlement with GTIL were trying to do “secret deals with GTI to force me (and others) to abandon our massive claims against them by effectively blackmailing me with your so-called indemnity”. 111.By an email dated 25 April 2011, the 4th defendant stated that he had discussed the matter of indemnity with some of the defendants and proposed that those wishing to continue the litigation in the name of the Partnership should cover “all further legal fees and damages arising there from. As a minimum, those wishing to fight should provide a guarantee (bank guarantee, assets etc.) of HK$100 million”. 112.The 2nd plaintiff’s response, contained in her email of 25 April 2011, was that the 4th defendant’s proposal was “totally out of logic as no one can stop any individual partners who got served with a writ not to defend for themselves… one needs to provide good grounds as to why one does not wish to fight (now and not before) apart from the sheer fear of incurring huge legal costs and damages etc”. 113.On the other hand, the 1st plaintiff’s response, contained in his email dated 26 April 2011, was that this proposal from the 4th defendant came from “Disney Fantasyland” and stressed that under the Termination Deed, the terms of any indemnity would only have to be reasonable and should not be better than “when the ‘non-fighting’ partners remained partners of JBPB”. 114.According to the 7th defendant, the 1st plaintiff verbally offered an indemnity of HK$1 at around this time to the 4th defendant. The 1st plaintiff accepts that that he made such verbal offer, but says that it was by way of a practical joke and being sarcastic. I do not accept this explanation given by the 1st plaintiff. It seems to me that the token indemnity of HK$1 offered by the 1st plaintiff clearly indicates that he did not take the matter of indemnity seriously, and was not willing to provide any reasonable indemnity under clause 7.1 of the Termination Deed. 115.As earlier mentioned, on 22 June 2011 the 2nd and 7th defendants went to the London for settlement negotiations and reached the “Framework Agreement” with GTIL to settle the disputes with GTIL, the Ex-MR Partners, USL and Jingdu on a “drop hands” basis, and on 27 June 2011 the defendants voted at a Partners’ meeting in favour of the “drop hands” proposal. 116.By a letter dated 6 July 2011 from the 7th defendant (on his own behalf and on behalf of the other defendants in this action) to the plaintiffs and Mr Paul Chow, the 7th defendant stated that they were no longer prepared for the litigations with (inter alia) GTIL, the Ex-MR Partners and GTUS to proceed in the manner in which it had been conducted – “either a full and meaningful indemnity should have been provided as required by the Deed of Termination and JBPB should be freed of the liability to finance the litigation, or the Potential Actions should be settled as agreed by a majority of partners under the Partnership Agreement”, and proposed to finalise settlement negotiations with the other parties in relation to the “Potential Actions” immediately. 117.In a reply letter dated 19 July 2011 from ONC Lawyers (the 1st plaintiff’s solicitors) to the 7th defendant, ONC Lawyers took the stance that his client was, on his part, entitled to continue the litigations against various parties (including GTIL, GTUS and the Ex-MR Partners) under the Termination Deed, the outcome of the litigation would have no bearing on those who had settled and retired, and the arguments over the provision of indemnity would become “redundant”. ONC Lawyers also stated that in the event of the defendants insisting on the proposed indemnity, the terms of the indemnity proposed by the 4th defendant in his email on 25 April 2011 (namely, provision of a bank guarantee or assets of HK$100 million to cover future legal fees and damages) were profoundly unrealistic and unreasonable. However, no counter-proposal was made by ONC Lawyers on behalf of the plaintiffs. 118.By a letter dated 12 August 2011 from J S Gale & Co (the defendants’ solicitors) to ONC Lawyers, J S Gale & Co gave details of the potential litigation costs and liabilities for continuing the litigations against GTIL, GTUS and the Ex-MR Partners in the total estimated amount of HK$137,670,340 (made up of HK$36,061,300 in respect of “own costs”, HK$25,509,040 in respect of the counterparties’ costs, and HK$76,100,000 in respect of potential liabilities). In that letter, J S Gale & Co also asked ONC Lawyers to revert on or before 19 August 2011 whether the 1st plaintiff could, in principle, provide a reasonable indemnity. 119.In their reply to J S Gale & Co dated 16 August 2011, ONC Lawyers repeated the stance that the 1st plaintiff could continue the litigations on his part and could not be forced to settle with GTIL/GTUS, and thus they failed to see “how the issue of indemnity would arise”. 120.On 17 August 2011, Salans UK prepared a draft indemnity and provided the same to the 1st plaintiff and the 7th defendant for consideration. Salans UK stated, in the covering email, that the draft indemnity was intended to be “a neutral document which balances each side’s interests equally”. 121.Salans UK also advised the Partnership, in an email dated 19 August 2011, that pursuant to the terms of the Termination Deed, if the minority partners were unwilling to provide an indemnity to the majority partners or the terms of the indemnity could not reasonably be agreed, the Partnership would be left in a position where “the majority decision will prevail”. 122.The 1st plaintiff claims that he once expressed agreement to the indemnity prepared by Salans UK, but Mr Paul Chow (a witness called by the plaintiffs to give evidence at the trial) says that the 1st plaintiff strongly opposed to the giving of the indemnity. It was also the 1st plaintiff’s evidence that he considered that there was no necessity for him to offer any indemnity to the defendants. 123.On the other hand, the 2nd plaintiff’s evidence is that she did not remember anyone approaching her and asking her to sign the indemnity. 124.As a matter of fact, the defendants did not receive form the plaintiffs any signed indemnity, whether in the form as prepared by Salans UK or in any other form. 125.There is a dispute between the parties on whether clause 7.1 of the Termination Deed only requires the plaintiffs to give an “enforceable assurance” to the defendants but does not require the plaintiffs to put up actual security to back up the assurance in order to carry on the litigations with third parties in the name of the Partnership. 126.I do not accept Mr Siu’s argument that, upon its true construction, clause 7.1 of the Termination Deed only requires the plaintiffs to give an “enforceable assurance” to the defendants in all circumstances. This contention fails to give effect to the express requirement in clause 7.1 of the Termination Deed that the indemnity should be “on terms reasonably acceptable to the Indemnified Partners … prior to any such litigation being pursued or continued”. 127.Whether, in any given situation, the defendants are entitled to require security to be provided, and what would be the appropriate form and value of the security (if required), would depend on the circumstances of the case. In the present case, having regard to (a) the huge potential liabilities for damages and legal costs, and (b) the fact that, based on the preliminary legal advices received, the Partnership did not appear to have strong claims or defences in the Potential Actions, it seems to me that the defendants were entitled to require the plaintiffs’ indemnity to be supported by securities. While there could be reasonable debates on the exact form or value of the securities to be provided by the plaintiffs, the defendants could, in my view, justifiably refuse to be accept a bare assurance or an unsecured indemnity given by the plaintiffs in the present case. 128.On the totality of the evidence before me, including ONC Lawyers’ aforesaid letters dated 19 July 2011 and 16 August 2011 respectively, I find that the 1st plaintiff was not willing to give any reasonable indemnity to the defendants under clause 7.1 of the Termination Deed. In coming to this conclusion, I have not lost sight of the fact that, at some stage, the 1st plaintiff might have been prepared to offer an unsecured indemnity for the potential counterclaim against GTIL in the GTIL Arbitration, which offer was rejected by the defendants (see paragraph 3.2 of J S Gale & Co’s letter dated 14 September 2011 to ONC Lawyers). As earlier mentioned, I consider that the defendants were entitled not to accept an unsecured indemnity offered by the plaintiffs. 129.In so far as the 2nd plaintiff is concerned, her stance seemed to be that she only needed to provide the indemnity after conclusion of the litigations with the third parties: see paragraph 25 of her affirmation dated 6 October 2011 where she stated that the defendants were “making an unreasonable and unjustified demand of indemnification to be made forefront, and even before any case in the Legal Claims has been concluded” (referred to in paragraph 58 of the witness statement of the 7th defendant). In my view, this is a false position, having regard to the fact that under clause 7.1 of the Termination Deed the obligation of the defendants to take all steps reasonably necessary to allow the plaintiffs to pursue or continue the Potential Actions is subject to (inter alia) the plaintiffs providing an indemnity on terms reasonably acceptable to the defendants prior to any such litigation being pursued or continued. 130.I should also add that since it was the plaintiffs who wished to pursue or continue the Potential Actions despite the contrary views of the majority of the Partners pursuant to clause 7.1 of the Termination Deed, the onus was on the plaintiffs to offer a reasonable indemnity to the defendants (and not the other way round as suggested by the 1st plaintiff in his email dated 7 December 2010). This they failed to do. The highest that can be said is that they were willing to offer an unsecured indemnity which, as mentioned above, I consider the defendants were entitled to reject. 131.In all, I find that neither the 1st plaintiff nor the 2nd plaintiff was willing to give any reasonable indemnity to the defendants under clause 7.1 of the Termination Deed. (v) The Michael Sim Case 132.Mr Michael Sim was one of the Ex-MR Partners who joined the Partnership as a salaried partner in July 2007. 133.During the time that he worked for the Partnership, he was given a laptop computer for his use. 134.Mr Michael Sim’s relationship with the Partnership came to an end in or about the end of July 2010, and the laptop computer came to be seized by the Partnership in circumstances which it is not necessary to recite in this judgment. 135.On 11 January 2011, Mr Michael Sim commenced an action in the High Court of the HKSAR (HCA 49/2011) against (inter alia) the Partnership, seeking injunctive and other relief in respect of certain confidential documents stored in or retrievable from the laptop computer and information contained in those documents. On the same date, Mr Michael Sim took out a summons seeking interim injunctive relief against the Partnership. 136.The 1st plaintiff was responsible for handling the defence of Mr Michael Sim’s action on behalf of the Partnership. Apparently, he expressed, to the other Partners, confidence about the merits of the Partnership’s defence. For example, in an email dated 13 January 2011 to the other Partners, the 1st plaintiff stated that “[i]f we win (I am confident), Sim will pay for our costs. Further, we’ll need to show the MR6 from the start that we are ready to fight them in Court, and fight them hard too”. 137.Despite the 1st plaintiff’s optimism about the prospect of success, on 24 June 2011, the court granted an interim injunction against the Partnership after an inter partes hearing at which the Partnership was represented by senior and junior counsel. 138.According to the 7th defendant, after that judgment some of the defendants became gravely concerned about wasting more money on groundless claims whilst others had a change of heart in pursuing unduly litigious and stressful actions. The defendants also lost confidence in the 1st plaintiff and his assessment of the merits and strategies of the Partnership’s litigations. (vi) Overall conclusion 139.In my view, it was primarily a matter of commercial decision whether the Partnership should settle the GTIL Arbitration, and on what terms that arbitration should be settled. It was equally a matter of commercial decision whether the Partnership should put forward the counterclaim favoured by the plaintiffs in the arbitration. In this regard, the 7th defendant’s evidence was that the filing of an aggressive counterclaim might be viewed by GTIL as suggesting that the Partnership was not sincere in settling and that might prejudice the Framework Agreement reached in June 2011. 140.I find that the defendants made the decision not to put forward the counterclaim favoured by the plaintiffs against GTIL in the bona fide belief that it was in the best interests of the Partnership not to do so. I also consider that the decision was a reasonable and justifiable one in the circumstances of this case. In this regard, I see no reason why the defendants would do anything to deliberately harm the interests of the Partnership, having regard to the fact that they themselves were equity partners of the firm. 141.The 1st plaintiff’s suggestion that the defendants’ wish to settle the litigations with GTIL and other third parties was somehow motivated by their desire to rejoin the GT Network seems to me to be entirely groundless. The 7th defendant’s evidence, which I accept, is that GTIL only approached the defendants to see whether they would be interested to rejoin the GT Network some 2 years after they had joined BDO. That would be well after the execution and implementation of the Settlement Deed. 142.Neither do I accept the plaintiffs’ allegation that the defendants’ decision to settle the litigations was prompted by, or had anything to do with, the plaintiffs’ starting to ask them in early May 2011 to account to the Partnership the work-in-progress (with an alleged value of about HK$150 million) and other assets of the Partnership brought by them to BDO. 143.In all, I find that the defendants were not in breach of the Partnership Deed, the Termination Deed and their fiduciary duties by the 7th defendant instructing the Partnership’s UK lawyers on 21 August 2011 not to file any counterclaim against GTIL in the GTIL Arbitration. ISSUE 2.2 O F Agreed List of Issues: Have Ds acted in breach of the Partnership Deed, the Deed of Termination and their fiduciary duties by D7 instructing the Partnership’s US lawyers on 1 and 2 July 2011 not to file any defence or counterclaim against GTUS in the US Litigation and left the action go into default? 144.As in relation to the GTIL Arbitration, both the plaintiffs and defendants were initially in favour pursuing the defence and counterclaim against GTUS vigorously. However, differences between the two camps developed later. The defendants wished to settle the disputes with GTUS for considerations which were similar to those which led to the defendants wishing to settle the disputes with (inter alia) GTIL, including:-
145.I shall not repeat my analyses of the evidence and the conclusions drawn in respect of the considerations referred to in (1), (3) and (4) above. 146.In respect of (2) above, the preliminary advices which the Partnership received from Salans US in respect of the prospects of the Partnership’s proposed defence and counterclaim in the GTUS Action were mostly negative. 147.In a draft memorandum containing Salans US’ analysis of the merits of the Partnership’s case in the GTUS action which the 1st plaintiff circulated to the other Partners on or about 17 March 2011, Salans US advised (inter alia) that:-
148.Salans US also mentioned in the same draft memorandum that, by reason of the terms of the promissory note issued to GTUS, the normal “US Rule” of litigation (namely, each party to bear its own legal costs) was not applicable such that if GTUS were to prevail over the Partnership’s defence of duress, all legal costs and expenses incurred by GTUS in pursuing its claim would have to be borne by the Partnership. 149.In a further email dated 1 July 2011, Salans US said that the Partnership’s counterclaim was “no more than a short-term bargaining chip” with GTUS. 150.The 7th defendant on behalf of the defendants gave instructions to Salans US on 1 and 2 July 2011 not to file any defence or counterclaim in the GTUS Action. However, in view of the 1st plaintiff’s protests, an “Answer with Affirmative Defence” was eventually filed, which the defendants considered to be an acceptable compromise: it was less antagonistic and would preserve a proper atmosphere for the intended GTIL settlement to proceed, while preventing GTUS from entering judgment in default and preserving the status quo pending any settlement with GTUS. 151.I find that the defendants came to the view that it was in the best interests of the Partnership not to file any defence or counterclaim against GTUS in the GT Action in the bona fide belief that adopting such strategy would be more conducive to achieving an overall settlement with GTUS. While there could be differences of opinion on what would be the best strategy to pursue, I consider that the defendants’ decision was one which could reasonably be made in the circumstances of the present case. I am not prepared to find that the defendants acted in breach of the Partnership Deed, the Deed of Termination or their fiduciary duties by instructing Salans US on 1 and 2 July 2011 not to file any defence or counterclaim in the GTUS Action. 152.As it was, an “Answer with Affirmative Defence” was filed on behalf of the Partnership in the GTUS Action in view of the 1st plaintiff’s protests, but the defendants were able to reach settlement with GTUS eventually on 17 January 2012 on terms which they considered to be satisfactory and which, I may add, the plaintiffs have failed to show are unreasonable or unduly unfavourable to the Partnership. Further, the plaintiffs have not proved that the Partnership suffered any loss or damage as a result of the instructions given to Salans US on 1 and 2 July 2011 not to file any defence or counterclaim in the GTUS Action. Issue 2.3 oF Agreed List of Issues: If the answer to 2.1 and/or 2.2 above is in the affirmative, was the Partnership prejudiced, and what is the remedy? 153.This issue does not arise in view of the conclusions reached on the preceding two issues. ISSUE 3.1 O F Agreed List of Issues: Did Ds as the majority partners have the legal right to vote for the Partnership to enter into the Settlement Agreement which binds the Partnership as a whole including Ps? 154.The answer is “yes”. Such right is supported by both clause 13(6) of the Partnership Deed (see paragraph 18(3) above), and section 26(h) of the Partnership Ordinance, which states as follows:
ISSUE 3.2 O F Agreed List of Issues: Does clause 7.1 of the Deed of Termination only requires Ps to give an ‘enforceable assurance” to Ds and does not require Ps to put up actual security to bank up the assurance in order to carry on the litigation with third parties in the name of the Partnership? 155.For the reasons stated in paragraphs 125 to 127 above, I am of the view that, upon the true construction of clause 7.1 of the Termination Deed and in the circumstances of this case, the defendants were entitled to demand the plaintiffs to provide reasonable securities in support of the indemnity which the plaintiffs were required to give if they wished to pursue or continue the Potential Actions despite the views of the majority of the Partners. ISSUE 3.3 O F Agreed List of Issues: Was Ds’ refusal to accept the unsecured indemnity offered by Ps in relation to the London arbitration unreasonable? 156.As mentioned above, I find that the plaintiffs were in fact not willing to give any reasonable indemnity to the defendants under clause 7.1 of the Termination Deed in relation to the third party litigations. Further, I consider that the defendants were entitled not to accept any an unsecured indemnity which might have been offered by the plaintiffs in the circumstances of the present case. ISSUE 3.4 O f Agreed List of Issues: Are Ds precluded from denying, frustrating or otherwise thwarting Ps’ right to rely upon clause 7.1 of the Deed of Termination by D1, D4 and D7 refusing or failing to discharge their duties of disclosure under clause 7.2 and by the other Ds supporting or condoning such breaches by D1, D4 and D7? 157.I have already found that the 1st, 4th and 7th defendants were in breach of their disclosure obligations under clause 7.2 of the Termination Deed, but I have rejected the plaintiffs’ complaint against the other defendants on that matter. 158.It has not been shown by the plaintiffs how their right to rely on clause 7.1 of the Termination Deed was denied, frustrated or otherwise thwarted by the 1st, 4th and 7th defendants’ breaches of their disclosure obligations under clause 7.2 of the Termination Deed. In particular, there is no evidence or proof that the plaintiffs’ failure or unwillingness to give a reasonable indemnity to the defendants under clause 7.1 of the Termination Deed was caused by the 1st, 4th and 7th defendants’ breaches of their disclosure obligations. ISSUE 3.5 O F Agreed List of Issues: Did Ds act mala fide in breach of the Partnership Deed, Deed of Termination and their fiduciary duties by (1) voting for the Partnership to enter into the Settlement Deed in terms which do not reflect the true strength and value of the Partnership’s claims or potential claims against the counter-parties to the Settlement, and (2) negotiating and concluding the Settlement Deed? 159.It is apparent from the findings above that I consider that the defendants were entitled to enter into the Settlement Deed in the name of the Partnership. There is, in my view, no proper basis or evidence to support any allegation that the defendants acted mala fide, or in breach of the Partnership Deed, the Termination Deed or their fiduciary duties, in relation to the negotiation or conclusion of the Settlement Deed, or in voting in favour of the Partnership entering into the Settlement Deed. 160.In so far as it is suggested by the plaintiffs that the Settlement Deed did not reflect the true strength and value of the Partnership’s claims or potential claims against the counter-parties to the Settlement, the plaintiffs have failed to prove that its claims or counterclaims against GTIL, the Ex-MR Partners, USL and Jingdu had any reasonable prospect of success. In this regard, the various preliminary advices given by the Partnership’s lawyers are, in my view, far from sufficient for proving that those claims or counterclaims had any reasonable prospect of success. Neither am I prepared to give weight to the allegations contained in the Partnership’s pleadings in the previous litigations or arbitration, or any out-of-court, bare, statements which might have been made by the parties regarding the strength or quantum of the Partnership’s claims or counterclaims against GTIL, the Ex-MR Partners, USL and Jingdu. 161.I should also at this juncture deal with a particular complaint raised by the plaintiffs, namely, the payment of HK$1.5 million by the Partnership to Jingdu under the Settlement Deed. The plaintiffs allege that all along, no claim or intended claim had been asserted by Jingdu and the 7th defendant previously said that Jingdu owed the Partnership “much money for the Partnership for the business in the PRC snatched by them from the Partnership and for the substantial IT-related costs incurred by the Partnership for their benefit”, and thus the decision of the defendants to settle with Jingdu, including the agreement to pay HK$1.5 million to it, was not and could not be justified by any bona fide commercial reason (see paragraph 59(4) of Statement of Claim). 162.The suggestion that Jingdu owed the Partnership any money in respect of any business in the PRC or IT-related costs is not supported by any, or any credible, evidence. 163.On the other hand, in relation to the payment of HK$1.5 million to Jingdu, the 7th defendant’s evidence, which I accept, is that the sum was not for settlement of any claim that Jingdu had or might have against the Partnership. Instead, it was money payable to GTIL for the Partnership being allowed to continue to use certain Microsoft software (which had a value of HK$3.3 million) in respect of which GTIL had a worldwide contract with Microsoft. As part of the settlement, GTIL agreed, for the consideration of HK$1.5 million, to let the Partnership continue to use the software (though a novation of the contract between GTIL and Microsoft). The payment of HK$1.5 million was made to Jingdu pursuant to the direction of GTIL. As a matter of fact, BDO subsequently bought the software from the Partnership and the purchase consideration was paid into the Partnership’s bank account. 164.In my view, there was a bona fide, justifiable, commercial reason for the payment of HK$1.5 million to Jingdu under the Settlement Deed. ISSUE 3.6 O F Agreed List of Issues: Is the Settlement Deed binding on Ps? 165.For the reason given in paragraph 154 above, the answer is “yes”. ISSUE 3.7 O F Agreed List of Issues: Are Ps precluded from arguing that Ds had no authority to enter into the Settlement Deed which also binds them by reason of the final award dated 26 March 2012 in the London arbitration? 166.In view of the conclusion I have reached that the defendants had authority to enter into the Settlement Deed on behalf of the Partnership and the Settlement Deed is binding on the plaintiffs, this issue does not arise for consideration. ISSUE 3.8 O F Agreed List of Issues: What “damages” or “equitable compensation”, if any, and the quantum, could Ps claim against Ds? 167.This issue does not arise for consideration in view of the various conclusions reached above. 168.I should add that the plaintiffs have, in any event, failed to produce any acceptable evidence of loss or damage allegedly suffered by the Partnership as a result of its settling various claims or disputes with third parties. In his final submissions for the plaintiffs, Mr Siu put forward various figures as representing the values of the claims by the Partnership and GTIL/Ex-MR Partners against each other, as well as various scenarios for estimating the Partnership’s loss or damage (see paragraphs 138 to 145 of Mr Siu’s written closing submissions dated 27 August 2015). The figures put forward were nothing more than bare assertions or estimates of the various claims unsupported by any real or primary evidence. The various scenarios put forward were also not supported by any serious analysis of the underlying evidence or merits of the respective claims. In my view, no weight can be given to the figures or scenarios raised by Mr Siu. 169.Finally, the plaintiffs have not applied for, or obtained any order, from the court for a split trial of liability and quantum. Hence, the plaintiffs would not, in any event, be entitled to any substantial award of damages or equitable compensation. ISSUE 3.9 O F Agreed List of Issues: Should the Court grant a permanent injunction to restrain Ds from implementing or taking steps pursuant to the Settlement Deed in the light of (1) Consent Orders having already been sealed for the settlement of the litigation and Ps’ challenge to their validity was unsuccessful before DHCJ Lok, and (2) the final award dated 26 March 2012 in the London arbitration had already ruled against Ps in this regard? 170.This issue does not arise for consideration in view of the earlier findings that the defendants were entitled to enter into the Settlement Deed on behalf of the Partnership and the same is binding on the plaintiffs. ISSUE 4.1 O F Agreed List of Issues: Did Ds since June 2011 together with the counter-parties to the Settlement Deed and with intent to injure Ps and/or to cause losses to Ps conspire and combine together to injure and/or defraud Ps by causing the Partnership to drop its claims against the counter-parties, and by implementing the Settlement Deed? 171.This complaint against the defendants is, in my view, without foundation and should never have been made. The answer is “no”. Issue 4.2 oF Agreed List of Issues: If the answer to 4.1 is in the affirmative, what is the remedy? 172.This issue does not arise for consideration in view of the answer to Issue 4.1. Issue 5 oF Agreed List of Issues: Have Ds failed and/or refused to provide Ps with full and unrestricted access to the computer systems and data within the Partnership’s IT systems? 173.The 7th defendant was the partner designated to be responsible for all IT-related matters of the Partnership. It is the plaintiffs’ case that the 7th defendant had possession, or was in control, of the “administrative password” of the Partnership’s IT systems, including the accounting and banking systems, personnel data, marketing data, email system and the time-recording and billing software developed with the resources of the Partnership known as “Practice Management System” (“PMS”). The plaintiffs’ complaint is that only the defendants, but not the plaintiffs, have full access to all emails within the Partnership’s email system and the source code and database of the PMS, and that the copy of the PMS provided by the 7th defendant to the plaintiffs is defective and incomplete in that part of the source code and part of the database are missing. The plaintiffs also complain that, despite repeated demands, the defendants have failed or refused to provide to the plaintiffs full and unrestricted access to all computer systems and data within the Partnership’s IT systems. 174.It is not in dispute that the plaintiffs had, as a matter of fact, possession of the computer hardware, including the servers, containing the PMS at the Sunning Plaza premises. The crux of their complaint relates to the failure or refusal of the 7th defendant to provide the administrative password. When this matter was put to the 7th defendant in cross examination, he explained that in fact he had provided the administrative password to the 1st plaintiff and the administrative password had never been changed. Apparently, around May/June 2011, after the Partnership terminated the services of Shinewing (who were originally retained to manage the litigations with third parties and wind down the business of JBPB), the Partnership attempted to take back possession of the computers but found that the Partnership’s IT system had broken down which the 7th defendant suspected was damaged by the 1st plaintiff (or his staff). For this reason, the defendants (including the 7th defendant) also did not have full access to the email system or the PMS. The 7th defendant offered to provide his IT personnel to fix the problem but insisted that once the system had been fixed, either he should get back control of the system or should be allowed to obtain a complete copy of the information contained in the system. However, no agreement could eventually be reached. 175.The 1st plaintiff’s evidence on this issue was generally vague and non-specific. On the other hand, the 7th defendant’s evidence on this issue, which I prefer, is straight forward and clear. I consider that the plaintiffs have failed to substantiate their complaint under this issue. ISSUE 6 O F Agreed List of Issues: Have Ps failed and/or refused to pay monthly licence fees to the Partnership for their use and occupation of the premises leased by the Partnership? 176.There is no dispute that:-
177.It is clear that the plaintiffs should reimburse or indemnify the Partnership for such part of the rent/mesne profits which the Partnership has paid or been held liable to pay to Silver Nicety Company Limited as is attributable to the plaintiffs’ use and occupation of the Sunning Plaza premises, taking into account the licences fees previously paid by the plaintiffs to the Partnership. The exact amount payable by the plaintiffs for the use and occupation of the Sunning Plaza premises should be determined upon the taking of the Partnership’s account. ISSUE 7 O F Agreed List of Issues: Have Ps wrongfully changed the access codes at the said premises to restrict the free and uninterrupted access to the premises by Ds? 178.According to the 7th defendant, in or about May 2011, the 1st plaintiff changed the access codes on the doors of the Sunning Plaza premises. The defendants were thereby denied free and unrestricted access to those premises as well as the documents and records stored therein. They could not enter the Sunning Plaza premises except by prior appointment and limited to office hours. 179.The plaintiffs accept that they did change the access codes on the doors of the Sunning Plaza premises in about May 2011. The plaintiffs justify their action on the ground that Shinewing was operating at the Sunny Plaza premises and needed to secure the premises. The 1st plaintiff also said that the defendants attempted, on a number of occasions, to change the locks to the Sunning Plaza premises without informing the plaintiffs or their employees. Further, it appears that the 7th defendant still had, as a matter of fact, access to the Sunning Plaza premises, by prior appointment or because the staff there could recognise him. 180.On the whole, I consider that the plaintiffs were justified to change the access codes on the doors of the Sunning Plaza premises in about May 2011. 181.In passing, I note that Mr Chang, in his closing submissions, accepted that this issue now appears to be academic since the Sunning Plaza premises had already been surrendered to the landlord in March 2012. ISSUE 8 O F Agreed List of Issues: Have Ps failed to procure an assignment of the lease of the said premises or the release of the Partnership from liability thereunder? 182.Mr Chang accepts that this is now a completely academic issue, given that the relevant premises had already been surrendered to the landlord. To the extent that the plaintiffs had the use and occupation of the Sunning Plaza premises, that would fall to be dealt with in the accounting exercise. It is unnecessary to make any further finding on this issue. ISSUE 1.1 O F Plaintiff’s List of Issue: Are Ds liable to account to Ps for the work-in-progress and receivables accrued to the Partnership but received by them or by BDO on their behalf, and the Partnership’s assets taken away by them? 183.The defendants accept that they are so liable. The answer to this question is “yes”. I would direct a proper account to be taken (on terms to be agreed by the parties, or by the court in the event of disagreement). ISSUE 1.2 O f Plaintiff’s List of Issue: Are Ps liable to account to Ds for the work-in-progress and receivables accrued to the Partnership? 184.The plaintiffs accept that they are liable to account to the defendants for the work-in-progress and receivables accruing to the Partnership for which the plaintiffs were responsible. As in respect of the preceding issue, a proper account should to be taken to ascertain the amount or value of the work-in-progress and receivables accruing to the Partnership. 185.In passing, I should mention that the plaintiffs seem to justify their failure to render proper accounts on the ground that the defendants had themselves failed to do so. For example, at paragraph 39 of his supplemental witness statements, the 1st plaintiff says that in February/March 2011, the plaintiffs reiterated that they were ready to render their accounts to the majority partners as long as the majority partners were ready to render theirs. At paragraph 40 of the same statement, the 1st plaintiff alleges that in September/October 2013, the majority partners “backed off” at the last minute when the minority partners reconfirmed that they agreed to the majority partners’ proposal to do an accounting exercise between the majority and minority partners. In my view, it is not an excuse for a partner to refuse to render proper accounts to his fellow partners just because the latter have failed or refused to do so. ISSUE 1.3 O F Plaintiff’s List of Issue: Are Ps liable to account to Ds for the sum of $509,445 paid to Shinewing Specialist Advisory Services Limited 186.Mr Chang did not, on behalf of the defendants, make any specific submission in either his opening or closing submissions in relation to this ground of complaint. There is insufficient basis to find that there was any overpayment or unjustified payment to Shinewing Specialist Advisory Services Limited. Accordingly, the defendant’s complaint against the plaintiffs under this issue is rejected. Conclusion 187.I shall leave it to the parties to agree on the final form of the judgment to give effect to the findings above. The parties shall have liberty to apply in the event of disagreement, and the following directions shall have effect:-
188.On the question of costs, each side has been successful on some of the issues. However, in respect of the main issues between the parties (ie those relating to the settlement of litigations with third parties), I have generally find in favour of the defendants. I make an order nisi that the defendants shall have 80% of the costs of the action and counterclaim, be taxed if not agreed. 189.There is one final matter that I wish to mention. For the purpose of the trial, a total of 22 trial bundles were produced (excluding the core bundle of documents which I specifically requested the parties to prepare). However, only a small number of documents in the 22 bundles were referred to at the trial. This is particularly true in respect of bundles 8 to 22. I was told by Mr Chang that those bundles were prepared by the plaintiffs’ solicitors without consultation with the defendants’ solicitors. Had the parties taken care to include only those documents which were strictly essential to resolve their disputes or which could reasonably be expected would be referred to in the course of the trial, I would have thought the trial bundles could have been shrunk to no more than 3 to 4 lever arch files in total. I do not propose to make any special costs order in respect of the costs wasted as a result of the inclusion of unnecessary documents in the trial bundles in the present costs order nisi, but I shall entertain any application that may be made by the defendants (if so advised) to vary the costs order nisi if they wish the court to make some special provision for those costs, in which event that matter will be considered afresh after I have heard full submissions from the parties. 190.In the event that either or both parties decide to apply to vary the costs order nisi on any ground(s), the application(s) relating to (i) the form of the judgment (if any), and (ii) the question of costs should be listed to be heard at the same time. 191.Finally, it remains for me to thank counsel for the assistance that they have rendered to the court.
Mr Patrick Siu, instructed by ONC Lawyers, for the 1st & 2nd plaintiffs Mr Jonathan Chang, instructed by Hart Giles, and Mr Andrew Hart, solicitors advocate, for the 1st to 9th defendants |
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