The Pui Ying Middle School of Hong Kong v. The Hong Kong Council of the Church of Christ in China
Read the full judgment text of HCA 1991/2016 on BabelCite. This High Court CFI judgment was delivered on 17 March 2021.
1. This is the trial of a dispute between The Pui Ying Middle School of Hong Kong (“ The Company ”) and Hong Kong Council of the Church of Christ in China (“ HK Council ”) over the School Sponsoring Body (“ SSB ”) status of Pui Ying Middle School (“ PYSS ”) and Shatin Pui Ying College (“ STPYC ”).
Cites 19 cases
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HCA 1991/2016 and HCA 3314/2016 (Heard Together) [2021] HKCFI 692 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1991 OF 2016 ________________
________________ IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 3314 OF 2016 ________________
________________ Before: Deputy High Court Judge Man, SC in Court Date of Hearing: 7, 8, 9, 10, 30 September, 5 October 2020 Date of Judgment: 17 March 2021 ________________ JUDGMENT ________________ 1.This is the trial of a dispute between The Pui Ying Middle School of Hong Kong (“The Company”) and Hong Kong Council of the Church of Christ in China (“HK Council”) over the School Sponsoring Body (“SSB”) status of Pui Ying Middle School (“PYSS”) and Shatin Pui Ying College (“STPYC”). 2.There are two actions before me: HCA 1991/2016 (“the 1st Action”) and HCA 3314/2016 (“the 2nd Action”). 3.In the 1st Action:
4.In the 2nd Action, the Company claims against the HK Council for breach of a written agreement dated 8 August 2013 (“the 2013 Agreement”).
5.The parties agree that the crux of the dispute lies in the 2nd Action. 6.At the trial, Mr Robert Pang SC, Mr Timothy Y.H. Wong, and Mr Gilbert Chong appeared for the Company. Mr Wong Yan Lung SC, Mr Adrian Lai, and Mr Vincent Chiu appeared for the HK Council. B. The parties and the historical development 7.The Company is a company limited by guarantee, incorporated in 1951. Its objects are, inter alia, to manage, administer, and operate schools in Hong Kong. It was set up for the purpose of operating PYSS. It is also the registered owner of the land upon which the PYSS premises stand. 8.The HK Council is incorporated under the Hong Kong Council of the Church of Christ in China Incorporation Ordinance (Cap. 1095). It is registered as a charitable organisation with the Hong Kong Government. It is a major coalition of Christian churches, schools, institutions, and personnel in Hong Kong. It has a long tradition of involvement in education in Hong Kong. Currently, the HK Council is the SSB of more than 50 schools in Hong Kong. I am told that it is the 3rd largest SSB in Hong Kong, after the Catholic Diocese and the Hong Kong Sheng Kung Hui. 9.The parties have referred me to the historical background of the Company and the HK Council. It is unnecessary to chronicle the full historical evolution of the various entities, save to note that:
C. Evolution of the statutory framework under the Education Ordinances 10.The evolution the statutory framework concerning the governance of schools in Hong Kong has been outlined in Catholic Diocese of Hong Kong v SJ(2011) HKCFAR 754. 11.When the HK Council was registered as the SSB of PYSS in 1957, the concept of SSB was not given statutory effect under the then prevailing 1952 Education Ordinance (“1952 EO”). Under the 1952 EO, s. 13(1) provided that every school shall be administered by a management committee consisting of all the registered managers (“SMC”). The duties of the SMC included ensuring compliance with the EO and the regulations (s. 13(3)), and recommending the supervisor and the principal for the Director of Education’s approval (ss. 14(1), 28A(1)). 12.Under the 1971 Education Ordinance (“1971 EO”), the majority of the SMC was given considerable sway. The Director of Education was bound to refuse registration of school managers if the applicant was not acceptable as a manager to the majority of the SMC (s. 30(2)). As a result, the SMC also had a veto over any proposed appointment of a supervisor because a supervisor must be a registered manager (s. 35(2)). The SMC of each school was, as a matter of law, given a substantial – and sometimes dispositive – say in determining who should occupy those positions: Catholic Diocese at 768. 13.It was only under the Education (Amendment) Ordinance 1993 (“1993 EAO”) that SSB was for the first time recognised on a statutory basis. Section 2(d) defines “sponsoring body” as “a society or body corporate that the Director approves in writing to be the sponsoring body for a school specified by him”. Section 25 of the 1993 EAO inserted the following provision:
14.The effect of s. 72A was that the Director of Education shall take into account the view of the SSB, and the SSB’s view shall “prevail” on matters relating to approval of school managers (matters falling within ss. 30(2) and 31(2)(a)), and approval of supervisors (matters falling within ss. 37(d) and 38(2), and 28A(2)). 15.Although s. 72A was amended in 2004 to apply only to schools without an incorporated management committee (“IMC”), it remains applicable to PYSS, as PYSS has yet to have an IMC. 16.On 8 July 2004, the Education Ordinance (the “2004 EO”) was amended by the Education (Amendment) Ordinance 2004. The amendments came into operation on 1 January 2005 to implement the EB’s school-based management policy:
17.Although the HK Council has all along been the SSB of PYSS, it is the Company’s case that such arrangement was only a matter of convenience because prior to 2004, the SSB concept was given little weight. This is strenuously denied by the HK Council. Instead, the HK Council suggests that it has undertaken substantial management responsibilities of PYSS since 1957. D1. Composition of the corporate bodies of the Company 18.It is common ground that for the 40 years up to 2015, PYSS and STPYC (the “Two Schools”) had the same SMC. All the SMC meetings of the Two Schools were held as part of the board meetings of the Company. Matters relating to the general management of the Two Schools, such as the annual school reports, the admission mechanism, and the employment of staff were discussed in these meetings. All directors of the Company were treated as members of the SMC of the Two Schools. The HK Council, as the SSB of PYSS, would cause these individuals to apply to the EB for registration as managers of PYSS pursuant to the EO. 19.In December 1962, Article 13 of the Company’s M&A, relating to the formation of the board, was amended to the following:
20.Article 13 was further amended pursuant to the special resolution dated 28 February 1991 (the “Pre-2016 M&A”). It provides:
21.I will return to the definition of the “School” in these articles later. 22.The proper construction of Article 13 is central to this dispute. The HK Council’s case is that it is entitled to appoint 8 directors who are not subject to any “veto” or “selection” by members at general meetings. The Company contends that there is no such automatic appointment and all directors were to be appointed “under the due process and authority” of the members and the board of the Company. 23.As regards the Company’s membership, the Pre-2016 M&A provided:
24.The membership of the Company comprises primarily of the alumni of PYSS, with the exception of HK Council representatives, alumni from other Pui Ying schools (e.g. Guangzhou Xiguan Pui Ying, but not STPYC), and the principals of the Two Schools. D2. Controversies arising out of the submission of draft IMC constitutions 25.It is the recent change in the statutory regime that precipitated the present dispute. 26.The need to incorporate an IMC was first discussed in an informal dinner meeting in or about 2010. There are some disputes as to what was precisely said or proposed in that meeting, but it is common ground that Rev So for the first time informed the Company that the HK Council planned to incorporate the IMCs for the Two Schools. 27.The issue was again raised in several meetings of the “常務校董會” (i.e. a sub-committee of the SMC which meets for operational matters concerning PYSS). However, no further action was taken. 28.Between 11 November 2011 to March 2012, the Company appointed Wong Wai Wah, the founding Principal of STPYC (“Wong”), to negotiate with 許俊炎 (“Hui”), the Chief Officer of the Education Services Department of the HK Council regarding the formation of the IMCs of the Two Schools. Whilst the HK Council disputes Hui’s authority to conduct negotiation on its behalf, it does not deny that such negotiations took place. 29.Section 40BK(3)(a) of the 2004 EO imposed a statutory deadline of 1 July 2011 for the SSB of the Two Schools to submit a draft constitution of the proposed IMC. Yet, no application had been submitted by that date. As a result, by letters dated 16 November 2011, the EB urged the HK Council to submit the draft IMC constitution for the Two Schools within six months (i.e. by 15 May 2012). On 13 April 2012, the EB reiterated the deadline in a further letter to the HK Council. 30.Eventually, on 15 May 2012, the HK Council submitted to the EB an application for the establishment of the IMC of the Two Schools with their respective draft constitutions attached. The same were sent to Lee on the same day. 31.Lee’s evidence is that he was only informed about the EB letters for the first time by Chan YY on 12 May 2012. 32.On 16 May 2012, Lee wrote to EB requesting it to transfer the SSB status of the Two Schools from the HK Council to the Company. The request was rejected by EB on 28 May 2012. The EB explained it was the prevailing practice that application for change of SSB should be initiated by the existing SSB. 33.On 28 June 2012, the alumni directors of the Company convened an urgent extraordinary general meeting (“EGM”) to discuss the situation. The meeting was adjourned to 18 July 2012 so as to enable the HK Council to reconsider the matter and to seek approval from its Executive Committee. On 18 July 2012, resolutions were passed in the EGM authorising (1) the transfer of the SSB status of the Two Schools to the Company; (2) the approval of the letters sent to EB; (3) the Company to take legal action if the HK Council did not agree to transfer the SSB. 34.In an attempt to resolve the dispute amicably, negotiations between the Company and the HK Council ensued:
35.The negotiations finally came to fruition. On 8 August 2013, Lee (on behalf of the Company) and Rev Yung (on behalf of the HK Council) executed the 2013 Agreement. 36.The material provisions are as follows:
37.Subsequently, the parties duly took steps to implement the 2013 Agreement in line with the EB’s instructions. 38.On the part of the HK Council:
39.On the part of the Company:
40.In processing the proposed transfer, the EB raised various queries and requested further information from the parties. In particular, by two letters dated 26 August 2014 and 2 December 2014, the EB requested the Company to amend the Pre-2016 M&A in order to comply with the standard articles required for allocation of school premises. In the latter letter, the EB requested the parties to expedite action so that the planned transfer of SSB could be completed before March 2015. 41.In response, the Company formed an M&A Working Committee (“M&A Working Committee”) in the AGM on 16 December 2014. The M&A Working Committee comprised of, among others, Lee, Rev So, and the then honorary legal advisor of the Company, Mr. Foo Tak Ching (“Foo”). Foo was instructed to draft the proposed amendments (the “Proposed Amendments”). D4. Turning Point – the “Alumni Qualification” 42.During the 16 December 2014 AGM, some alumni members of the Company challenged the qualifications of Choi Kin Chung (“Choi”) and Chan YY to sit as directors because they were not alumni of the Two Schools. They argued that Article 13 of the M&A required directors to be “members of the School”, which meant “alumni of the Two Schools” (the “Alumni Qualification”). 43.Article 13 of the Pre-2016 M&A stipulated that:
44.On 14 January 2015, 11 alumni members of the Company wrote to Lee. They alleged that Choi, Chan YY, and the HK Council representatives were not qualified to act as directors of the Company since they were not “members of the School” under Article 13. 45.On 20 January 2015, Foo provided legal advice to the effect that the term “members of the School” meant “alumni of the Two Schools”. Foo’s written advice is, however, not before this Court. 46.Notably, the Alumni Qualification would mean none of the HK Council-nominated directors at the material time was qualified, because none of them was an alumnus of either of the Two Schools. 47.At the 21 January 2015 board meeting, relying on the legal advice by Foo, Lee came to the view that Choi, Chan YY, and the HK Council representatives were not qualified to act as directors of the Company. As a result, Lee said that the board meeting would be invalid due to insufficient quorum and he proposed to cancel the board meeting. This was met with strenuous opposition from the other directors. The majority ultimately voted to continue with the meeting. 48.The HK Council submitted that the Proposed Amendments had the effect of “engraving” the Alumni Qualification because:
49.At the 14 February 2015 board meeting, these Proposed Amendments were discussed. It was resolved that the amendments in relation to the IMC were approved “in principle”. Other amendments relating to the qualification of members and directors were to be further discussed and followed up in later board meetings. 50.On 11 March 2015, an EGM of the Company was convened for passing a resolution to approve the Proposed Amendments. 8 representatives of the HK Council voted against the resolution. Out of 46 valid votes, 33 members voted for the resolution (71.7%) and 13 voted against it. Since the 75% threshold was not reached, the resolution was not passed. 51.After the 11 March 2015 EGM, Mr. Wu Mei Sam (“Wu”), an alumni member, applied to the court for leave to commence derivative action to remove Choi and Chan YY from directorship on the strength of the Alumni Qualification (the “HCMP 1122/2015 Action”). By a judgment dated 31 August 2015, Harris J rejected the alleged Alumni Qualification, holding that it was an erroneous interpretation of the M&A. The learned judge held that the reference to “School” in the M&A meant the “Company”. Although all directors must be members of a “Protestant Church”, there was no requirement that they have been alumni of PYSS. 52.The Company now maintains that the HCMP 1122/2015 Action was nothing more than a personal action by a single member that did not represent the Company’s view. In Lee’s evidence at trial, he stressed that he all along disagreed with Wu’s views. 53.On 8 May 2015, Messrs. F. Zimmern & Co. (“Zimmern & Co.”), solicitors of the HK Council, wrote to the EB to withhold the transfer of the SSB. Accordingly, the EB did not continue to process the transfer application. 54.On 24 July 2015, the HK Council submitted the draft constitution of the IMC of STPYC to the EB. 55.On 21 August 2015, the EB notified the HK Council that the draft constitution was approved. On the same day, the HK Council submitted to the EB a list of eight proposed managers of STPYC. 56.On 31 August 2015, the EB approved the registration of the proposed managers and the IMC of SPTYC was duly formed. 57.After Harris J sounded the death knell for the Alumni Qualification, a consensus was achieved as to the way forward in the 30 September 2015 board meeting. It was resolved that (1) there was no requirement for the Company’s directors to be alumni of the Two Schools; (2) the Company and the HK Council should continue to cooperate in the development of the Two Schools in line with Christian values; and (3) a five-member sub-group would be established to further discuss the way forward. 58.The sub-group met on 7 October 2015. But the discussion did not bear fruit. 59.The establishment of the IMC of STPYC on 31 August 2015 was, in the eyes of the Company, an act of “unilateral incorporation”. This state of affairs clearly upset the alumni members of the Company. In a series of meetings that followed, the representation of the HK Council on the Company’s board was substantially curtailed. 60.Mr Wong SC quite aptly described this meeting as the “watershed”. 61.On 25 November 2015, Lee distributed a supplementary agenda with three additional motions for the 16 December 2015 AGM. These additional motions concerned (1) the re-election of director following the resignation of Dr MW So; (2) the approval of the increase of the number of members of the Company to 60; (3) the approval of the applications by 12 alumni of STPYC to become members of the Company. The HK Council disputes the validity of these additional motions on the ground that no prior approval of the board of directors of the Company had been obtained. 62.Notably, during the meeting, certain alumni members sought to subject to the directors nominated by the HK Council (Rev So and Rev Yung) to the members’ approval or veto by way of voting. The alleged requirement that nominations by the HK Council have to be voted on in an AGM has been referred to in these proceedings as the “AGM Requirement”. One of the members, 布維明, objected to the re-election of Rev So and demanded the HK Council to nominate another representative. Eventually, the members resolved:
63.In addition, Lee, as the Chairman, ruled that the directorship and membership of Ms Chan Lai Fun (“Chan LF”) (principal of STPYC) was to be suspended until the SSB status of STPYC is transferred to the Company. Lee explained that since there were no Company representatives in STPYC’s recently established IMC, STPYC had already been “severed” (脫離) from the Company. 64.The development in the subsequent meetings is summarised in the following table.
65.After the 12 December 2017 AGM, Rev Yung remained as the only HK Council representative on the Company’s board. The effect of these meetings was that the HK Council had lost its control on the Company’s board. The HK Council now challenges the validity of these meetings and the resolutions passed therein. 66.It was only until the 16 January 2019 AGM that three out of the eight HK Council nominees were accepted as directors. The other five were rejected on the basis that they were involved in outstanding litigation with the Company. D7. The 29 June 2016 SMC Meeting 67.In the meantime, the HK Council also sought to regain control. By two notices dated 10 May 2016 and 20 June 2016 respectively, an SMC meeting of PYSS was requested to be held on 29 June 2016. At the 29 June 2016 SMC Meeting, it was resolved that:
68.The Company objected to the validity of the SMC Meeting on the basis that notice was only sent to registered members and not other directors of the Company and managers of PYSS, whose registration by the EB was still pending. The HK Council maintained that since Rev So (and other the HK Council representatives) remained registered managers under the EO, they still had to, and could, discharge their statutory duties. 69.Since then, further SMC meetings have been held separately from the board meetings of the Company. E. Issues in dispute in the 2nd Action 70.The parties are agreed that the following issues arise for my determination in the 2nd Action:
71.The HK Council raises these additional issues:
72.The HK Council’s case is that the 2013 Agreement had been discharged by the Company’s repudiatory breach. Specifically, the Company is said to be in breach of:
73.The HK Council further says the Company has committed a repudiatory breach by insisting on the Alumni Qualification and the AGM Requirement which the HK Council has accepted in filing the pleadings in this case. 74.The HK Council’s position is also that in any event, the Court should not exercise its discretion to grant specific performance because, inter alia, (1) the Company comes to the Court with unclean hands; (2) the Company is not willing, able and ready to perform the 2013 Agreement; and (3) the mutual trust and confidence between the parties has irretrievably broken down. 75.The Company’s factual witnesses are Lee (李偉庭), the present chairman of the Company, and Wong (黃衞華), the founding Principal of STPYC from 1978 to 1996. 76.The HK Council’s factual witnesses are:
G. The three Alleged Breaches of the 2013 Agreement 77.The core provision alleged to have been breached by the HK Council is Clause 8 of the 2013 Agreement (“區會承諾會根據教育局指示盡其所能協助培英獲取教育局批准及登記為該兩校辦學團體。”). The Company claims that the HK Council failed to use its best endeavours to assist the Company to receive the EB’s approval and registration to become the SSB of the Two Schools in accordance with the EB’s instructions. 78.I now set out the parties’ pleaded case in relation to the breaches in further detail. 79.The Company’s pleaded case is that at the 11 March 2015 EGM, “HKCCCC procured its 8 representatives to vote against the resolution to amend the M&A of PYHK ... knowing that the proposed amendments were for the purpose of complying with the requirements of EB for processing the transfer of SSB of the Two Schools and that failure to approve the Amendments in general meeting would jeopardize the transfer of the SSB of the Two Schools.”: [15.1] of the Statement of Claim in the 2nd Action (“SOC”). 80.As noted above, the Proposed Amendments set out in the draft amended M&A tabled at the 11 March 2015 EGM included: changing (a) the definition of “The School” from “The Pui Ying Middle School of Hong Kong” to “the schools whether primary or secondary operated and managed by the Company in Hong Kong”, and (b) the definition of “The Company” from “the Company having the management or control of the Schools” to “The Pui Ying Middle School of Hong Kong”. 81.The HK Council’s pleaded case is this. At [65] of the Defence and Counterclaim in the 2nd Action (“D&CC”), the HK Council specifically denied that the three events (forming the basis of the Company’s three pleaded breaches) constituted any breach of the 2013 Agreement. It relied on [41]-[48] of the D&CC in support. It is necessary to set them in some detail in light of a potential pleading point.
82.Mr Wong went on to submit that the HK Council’s representatives’ voting against the resolution did not constitute a breach because:
83.Mr Wong stressed the negative effects of the Proposed Amendments on the prospects of the EB’s approval of the Company’s application to become the new SSB. He also submitted that in objecting to the Proposed Amendments, the HK Council was using its best endeavours to ensure the integrity and proper performance of the 2013 Agreement, as correctly understood; removing the presence and influence of the HK Council would reflect poorly and negatively on the Company as the incoming SSB. He noted that under cross-examination, William Lee accepted that in view of the insistence of Alumni Qualification, it was reasonable for the HK Council to refuse to vote for the Proposed Amendments. 84.Mr Pang’s reply is two-fold. First, Clause 3(i) of the Memorandum (the Object Clause) was effective to ensure that “Any Christian resident in the Hong Kong Special Administrative may upon being elected become a member of the School”. There would therefore be no change to the requirements for becoming a member and director of the Company. Second, the witness statement and supplemental witness statement of Rev So never identified the change of the definition of “The School” as being the cause of the problem, nor was this mentioned in the HK Council’s two letters (via its solicitors) to the Company which objected to the EGM being held. 85.The Company pleaded that on 8 May 2015, the HK Council instructed Zimmern & Co. to write to the EB to withhold the transfer of the SSB of PYSS and STPYC back to the Company: SOC at [15.2]. 86.The HK Council seeks to justify this by noting the objection raised by the stakeholders of STPYC. Its pleadings have been set out above and need not be repeated: D&CC at [41]-[48], [65]. 87.Mr Wong highlighted various paragraphs in the correspondence to illustrate why the HK Council considered the views of the major stakeholders of the Two Schools as a crucial factor for the EB’s decision:
88.Mr Wong drew my attention to evidence indicating how the major stakeholders became opposed to the intended transfer of the SSB status. This includes (a) the minutes of the STPYC parent-teachers’ association executive committee dated 1 June 2015; (b) a letter dated 19 August 2015 from the Chairman of the STPYC Alumni Association to EB; (c) a letter dated 20 August 2015 from the staff of STPYC to EB; (d) a letter dated 26 August 2015 from STPYC parent-teachers’ association to EB; (e) and an open letter issued by the STPYC Alumni Association dated 16 February 2016. 89.All in all, Mr Wong submitted that it would be counter-productive were the HK Council to ignore the strong opposition. It would also go against the instructions of the EB, which emphasised the need to consult and reach consensus with the stakeholders. 90.In reply, Mr Pang submitted that Mr Wong’s reference to the STPYC stakeholders’ views was insufficiently pleaded; and that the HK Council took no steps to resume the transfer. 91.The Company pleaded that “in or about July 2015, HKCCCC applied again for the establishment of the IMC of STYPC [by] submitting a draft constitution which provided that the SSB of STPYC was HKCCCC with the power to nominate 8 managers, including the supervisor”: SOC at [15.3]. 92.In addition to [41]-[48] of the D&CC, the HK Council pleaded at [65(3)] that there was urgency in submitting a draft constitution for the IMC for the Two Schools in light of its statutory obligations as the SSB and the deadlines imposed by the EB:
93.In reply, Mr Pang submitted:
94.This is a convenient juncture to deal with a pleading point. The HK Council’s pleaded case did not explicitly advance a construction of Clause 8 to the effect that for it to completely shut its eyes to legitimate views of the stakeholders and submit an application for transfer might not impress the EB. This argument was first raised during opening submissions, and this point was subsequently explored in the cross-examination of Dr Lee. 95.During Day 2 of the closing submissions, Mr Pang indicated that it would not be fair for him to take this pleading point in relation to the 1st Alleged Breach at the eleventh hour. 96.But Mr Pang maintained a pleading point in respect of Zimmern & Co.’s letter concerning the Shatin stakeholders’ objection (i.e. the 2nd Alleged Breach). The argument is that the pleading did not specifically spell out that the existence of the Shatin stakeholders’ objection as a justification for requesting the suspension of the transfer of SSB. 97.I agree with Mr Wong that his case in relation to the 2nd Alleged Breach was sufficiently pleaded. First, at [46] of the D&CC, the letter is pleaded and relied upon. The letter contained a specific reference to the Alumni Qualification issue and its “significant impact on [the HK Council’s] rights under the 2013 Agreement”. Second, there is no dispute that the effect of the letter was to ask the EB to withhold the transfer, in which the reasons for withholding (including the Shatin stakeholders’ objections) were spelt out. Third, the content of Zimmern & Co.’s letter was traversed and addressed in Dundons’ letter, which was in turn pleaded at [47]. Dundons’ letter subjected the concerns raised in Zimmern & Co.’s letter (including the Shatin stakeholders’ objections) to detailed analysis and responded. Finally, whilst Mr Wong frankly accepted that the HK Council could have spelt it out with greater particulars, the reality, in my judgment, is that both sides had fair notice of the issues to be debated. G5. Whether the three Alleged Breaches are made out (i) Principles on interpreting a best endeavours clause 98.Clause 8 provides that “區會承諾會根據教育局指示盡其所能協助培英獲取教育局批准及登記爲該兩校辦學團體。” It is common ground between the parties that “盡其所能” means “using one’s best endeavours”. The applicable principles on interpreting a best endeavours clause are undisputed. 99.In Tin Shui Wai Development v The Attorney General (HCCT 5/1987, unrep., 30 September 1992), the Hong Kong government had undertaken to the developer to use its best endeavours to facilitate the timely development of a new town in Tin Shui Wai. Godfrey J held at 39-40:
100.These observations are pertinent. Where the obligor is, to the knowledge of the oblige, subject to public or statutory duties, the wider interests of relevant stakeholders would have to be factored into what “best endeavours” require. At 38-39, Godfrey J rejected the argument that the Government was obliged to use its best endeavours to “ensure” anything:
101.Beyond the context of statutory duties, in considering whether an obligor has used his “best endeavours”, the courts have also taken into account other pre-existing duties on the part of the obligor in circumstances where such duties would have been known to the other side. For instance, the duty to use “best endeavours” on the part of the directors of a corporate obligor are subject to their fiduciary duties to act in the company’s best interest and to make full and honest disclosure to its shareholders before voting on a particular resolution: John Crowther v Carpets International [1990] BCLC 460 at 464f-465b (Vinelott J); Rackham v Peek Foods Ltd [1990] BCLC 895 at 916 (Templeman J); Terrell v Mabie Todd and Co Ltd [1952] 2 TLR 574 at 576 (Sellers J). 102.I also accept the summary of principles by the Singapore CA in KS Energy Services Ltd v BR Energy (M) Sdn Bhd [2014] SGCA 16 at [93], which was arrived at after a comprehensive review of the authorities:
(ii) Application to the facts 103.The rival contentions have been set out under each Alleged Breach respectively. In summary, I accept Mr Wong’s submissions that none of the Alleged Breaches has been made out, mainly for the reason that the events constituting the Alleged Breaches took place against the context of an extant dispute on the Alumni Qualification. As I explain below, I have reached this conclusion without attributing any insistence on the Alumni Qualification to the Company. Nor is it necessary for me to rely on the concerns raised by the STPYC stakeholders. 104.In my judgment, complying with the best endeavours obligations under Clause 8 is not simply a matter of writing to the EB persistently, without regard to whether the EB would realistically approve the application in the circumstances. To facilitate the approval, I believe one has to behave in a balanced and responsible manner. Best endeavours would be applied by adopting a measured and prudent approach. If there is a dispute brewing that leads to litigation between major stakeholders in the school, the EB is unlikely to look favourably upon the application to transfer. I accept that in such circumstances, applying best endeavours would be constituted by reasonably asking the EB to wait until the dust settles. With these general remarks in mind, I examine each Alleged Breach in turn. 1st Alleged Breach 105.The 1st Alleged Breach is not made out because I accept that it was reasonable for the HK Council representatives to vote against the Proposed Amendments when several alumni members were seeking to entrench the Alumni Qualification. 106.During the Constitutional Amendment Group meeting on 4 February 2015, it was agreed that changes to the board composition were matters that required further discussion. It was also agreed that Foo should prepare the first draft of the amended M&A, which should be reviewed and discussed by the board, before submitting it to EGM for approval. However, Lee, without any board resolution, issued a notice to convene the 11 March 2015 EGM to approve the Proposed Amendments. Those Proposed Amendments sought to “entrench” the Alumni Qualification by:
107.These changes, when read together with Article 19 (i.e. “...Provided that all Directors appointed to the Board of Directors shall be member of the School and that no persons other than members of the School shall be appointed Directors in any circumstances”), mean that all directors must be “members” of “the schools whether primary or secondary operated and managed by the Company in Hong Kong” – it would seem to be at least much more likely that if the Proposed Amendments were adopted, it would be much easier to contend that the Alumni Qualification represented the true effect of the amended articles. 108.I accept Mr Wong’s submissions that objecting to and voting against the Proposed Amendments was consistent with the HK Council’s application of best endeavours. I do not see how the obligation to apply best endeavours under the 2013 Agreement would require the HK Council to support amendments to the articles of the Company which would have the effect (or the likely effect) of adopting the Alumni Qualification. The HK Council, in my judgment, was wholly entitled to oppose the Alumni Qualification both before and after the 2013 Agreement. 109.I reject Mr Pang’s argument that the “Christian” requirement under Clause 3(i) of the Memorandum put it beyond doubt that “members of the School” under Article 13 of the Pre-2016 M&A meant “members of the Company”. Clause 3(i) had never been the focus of the discussion between the parties, and it is plain that prior to Harris J’s judgment, the alumni members of the Company had been insisting on the Alumni Qualification on various occasions, as chronicled above. 110.During the cross-examination of Rev So, Mr Pang put to Rev So that it was a recent fabrication for him to say that the HK Council objected to the Proposed Amendments because those amendments fortified the Alumni Qualification. Mr Pang fairly withdrew this submission in closing submissions because the HK Council did make clear in a letter of Zimmern & Co. dated 18 January 2016 that their objection was on the basis of the amendments to the definitions (which was fairly clearly related to the objection to the Alumni Qualification). 111.Mr Pang then invited me to hold that the actual reasons given by the HK Council at the time of objecting to the Proposed Amendments were insufficient, and that could constitute evidence of a breach of the 2013 Agreement. I am unable to accept that submission. Since I am of the view that the HK Council was entitled to object to the Proposed Amendments, I do not think it is right for me to hold them in breach of the 2013 Agreement simply because they did not give all the correct reasons for their objection. 112.Mr Pang then submitted that Rev So should have properly articulated his concerns and suggested an amendment as part of the HK Council’s best endeavours obligations. One difficulty with this is that the Company has never pleaded a complaint that there was a breach of not suggesting an alternative amendment. In addition, the HK Council had on various occasions in 2015 explained that the Proposed Amendments exceeded the agreed scope of amendments: see (1) Liu, Chan & Lam’s letter dated 9 March 2015; (2) Zimmern & Co.’s letter dated 8 May 2015; and (3) Rev So’s statements made at the 16 December 2015 AGM. In any case, if the HK Council was entitled to object to amendments which fortified the Alumni Qualification, I do not think Clause 8 would somehow be breached simply because the HK Council did not suggest amendments which would be acceptable to all sides (when it was plain that the different factions held rather entrenched positions). 2nd Alleged Breach 113.In my judgment, the 2nd Alleged Breach is not made out because the transfer was withheld as a result of ongoing disputes as to the relationship between the HK Council and the Company. It seems to me to be eminently sensible for the HK Council to invite the EB to suspend the process until the disputes were resolved 114.This is particularly so given that when the HK Council first applied to the EB, it highlighted to the EB that the Company and the HK Council “has been maintaining a close working relationship ... in education and evangelism throughout the years” and that the transfer of SSB was a manifestation of “the spirit of mutual partnership” (letter dated 8 August 2013). The HK Council was clearly obliged to inform the EB if that basis had been substantially undermined. 115.Further, in Zimmern & Co.’s letter to the EB dated 8 May 2015, the HK Council drew to the EB’s attention the HCMP 1122/2015 action commenced by Wu. The HK Council stated that “The Retiring SSB considers that the proceedings may have some impact on the Substitute SSB.” It invited the EB to withhold the application for transfer in the meantime, “until the said legal proceedings have been determined or settled or various stakeholders have reached consensus as to how the Pui Ying Schools should be managed in the future.” The EB was clearly aware of the ongoing litigation and it would be a responsible and sensible thing to ask for the transfer process to be suspended whilst the litigation was still extant. 3rd Alleged Breach 116.In my judgment, the 3rd Alleged Breach is not made out because the incorporation of the IMC for STPYC and the transfer of the SSB under the 2013 Agreement were two different and distinct matters. I accept that there was time pressure to incorporate the IMC. The HK Council was statutorily obliged to incorporate the IMC in time. Sections 40BK and 40BM of the EO required the SSB to submit a draft constitution and a list of proposed managers. For it to ignore that duty would most likely worsen the prospect of a successful application for the transfer of the SSB status. These requirements were tellingly spelt out in a letter dated 29 July 2016 from the EB to the Company. EB was emphatic on this:
117.Applying the John Crowther line of authorities outlined above, I hold that the HK Council’s best endeavours obligation was subject to its pre-existing duties as the SSB. Notably, the process of applying to set up the IMC for the Two Schools had already commenced back in May 2012. But the process was held up by the dispute with the Company, the negotiation for the 2013 Agreement, and the further disputes caused by the Alumni Qualification. One could discern a real sense of urgency for incorporation from the various correspondence between the HK Council and the EB at the time. 118.As to why only an IMC for STPYC (but not PYSS) was set up, I believe it is plain that the setting up of the IMC for STPYC first would be a much more realistic goal, given that the most prominent dispute at the time was between the HK Council and alumni of PYSS. Further, if (as I believe) the setting up of the IMC for STPYC was not a breach of the 2013 Agreement, then the fact that the HK Council could also have tried to set up an IMC for PYSS should not, logically, change that conclusion. 119.Finally, Mr Pang’s argument that the HK Council should not have appointed SSB managers without first consulting the Company has not been pleaded, nor do I think the HK Council had such an obligation. 120.All these mean that it is not strictly necessary for me to rely on the concerns raised by the STPYC stakeholders for my conclusion on the best endeavours obligation. But had I need to rule on the issue, I agree with Mr Wong that it was proper for the HK Council to take into account other stakeholders’ opinions to vote against the Proposed Amendments, withhold the transfer, and incorporate the IMC for the reasons he gave (see above at [83], [87]-[89]). This is consistent with the emphasis that the Tin Shui Wai Development case placed on a public body’s obligations to consider the wider interests of stakeholders. Although a SSB might not be a public body for all purposes, for present purposes I think it is plain that it should, and was obliged to, take account of the interests and views of the wider body of stakeholders. 121.For instance, in relation to the 3rd Alleged Breach, during cross-examination, Mr Pang put it to Rev So that the STPYC stakeholders’ view was simply that they did not want the transfer, which had nothing to do with the IMC. Nevertheless, Rev So emphasised, and I agree, that incorporating the IMC would give the STPYC alumni (who had been complaining of being excluded) the opportunity to participate in the operation of STPYC, thereby alleviating their discontent. This might be conducive to achieving consensus in due course and easing the path for the EB to approve the transfer. (iii) Whether the Alumni Qualification can be attributed to the Company 122.I should make clear that I would not attribute the insistence on the Alumni Qualification to the Company. 123.In terms of pleadings, Mr Wong said attribution is adequately pleaded because:
124.But none of those paragraphs advances a clear plea that the act, knowledge or state of mind of any particular individual, be it Wu or Lee, should be properly attributed to the Company. 125.On the evidence, Mr Wong reminded me it was the Company that convened the 11 March 2015 EGM to pass the Proposed Amendments engraving the Alumni Qualification. Also, the Company, acting through the solicitors Liu, Choi & Chan and Foo, wrote to the EB by letters dated 23 February 2015 and 13 March 2015 and submitted a draft amended M&A that included the Proposed Amendments. There can be no doubt that all these were done in the capacity of the Company through the solicitors. 126.Yet, I do not think that it can be said that the Company was in any way insisting on any amendment when it had already been defeated in its own general meeting. The aforesaid letters, attaching draft amended M&A, would likewise at most be a corporate act to tell the EB that those were the amendments to be tabled, rather than an act to insist on those amendments even if they were to be defeated in the Company’s own general meeting. 127.Mr Wong further submitted that Wu commenced the HCMP 1122/2015 proceedings on behalf of the alumni members with their full support. First, Wu was among the 22 alumni members who wrote to Lee on 19 December 2014 and among the 11 alumni members who wrote on 14 January 2015. Second, notwithstanding Lee’s role as Chairman of the board, he had refused to convene or chair any board meeting since early May 2015 when Wu commenced proceedings, and only resumed chairing the board meetings in September 2015 after Harris J dismissed the application on 31 August 2015. Mr Wong discussed this at great length with Lee during cross-examination. He criticised Lee for giving an unmeritorious excuse that Wu’s actions were not important enough to warrant immediate attention. Finally, Mr Wong referred to Lee’s open letter dated 29 February 2016, in which he wrote (as the Company’s Chairman):
128.However, I agree with Mr Pang that the HCMP 1122/2015 proceedings were commenced by Wu as a member of the Company in respect of an application for leave to commence a statutory derivative action. The nature of a derivative action means that the Company was a defendant (albeit only a nominee defendant). The Company was in fact legally represented in those proceedings and opposed the application for leave. At [63] of his first witness statement, Lee emphasised that Wu’s personal action did not represent the official view of the Company. 129.All these must be viewed in the context that at that time, the HK Council still held 8 out of the 17 seats on the board of the Company. 130.For the above reasons, I hold that none of the alleged breaches of the 2013 Agreement has been made out. H. Whether specific performance could be ordered where there is no breach of contract 131.Mr Pang submitted that in an action for specific performance, the Company does not have to establish a breach, unlike in a common law action for breach of contract. Relying on Hesham v Zenab [1960] AC 316, Marks v Lilley [1959] 1 WLR 749, it is argued that where there is a sufficient likelihood of the occurrence of a breach to render it desirable that the interests of the Company should be safeguarded by the court, specific performance of the 2013 Agreement will be granted. 132.I do not think this assists the Company. 133.First, I agree with Mr Wong that this is not how the Company’s case has been pleaded. The Company has not pleaded any circumstances outside of the three Alleged Breaches which would justify the intervention by a court of equity by ordering specific performance. All the pleaded breaches preceded 30 September 2015 and Harris J’s judgment on 31 August 2015. The Company has not pleaded that notwithstanding the consensus reached at the 30 September 2015 board meeting, the HK Council has refused to take any steps to assist the Company to obtain the EB’s approval. 134.Nor is this stated in the parties’ agreed list of issues, which is limited to, inter alia:
135.Admittedly, the agreed list of issues does not have equal standing as pleadings. But in my view the agreed list of issues fortifies my reading of the pleadings outlined above. 136.Pleadings aside, I do not think there is anything in this case which merits ordering specific performance without a breach of contract. While Mr Wong criticised Hesham and Marks as being concerned exclusively with conveyancing, I am prepared to proceed on the basis that the principles expressed therein have general application. However, I agree with Mr Wong that, short of a breach, there must still be specific circumstances justifying the court’s intervention. It was stated in Spry, The Principles of Equitable Remedies (9th edn.) at 80-81:
137.Hasham v Zenab was explained in Auckland Council v Pallister [2014] 2 NZLR 405 as a case where the court exercised its equitable jurisdiction to intervene upon the vendor having “repudiated the agreement by tearing it up a few moments after signing it”: [27], although the date of settlement had not yet arrived: [28]. Similarly, in Marks v Lilley, there were multiple defaults in meeting the completion dates which might indicate a likelihood of breach of contract. 138.I do not think there is evidence meriting a holding in this case that the HK Council was likely to commit a breach of contract such that specific performance should be ordered. 139.Indeed, at the 30 September 2015 board meeting, the consensus reached was to cooperate. It was agreed between the parties that the Alumni Qualification was not necessary and that they would continue to cooperate sincerely to build up the Two Schools. A five-member sub-group was even set up under Lee’s chairmanship to discuss the way forward. 140.Accordingly, I conclude that I should refuse the Company’s prayer for specific performance. I. Whether the 2013 Agreement is void and/or unenforceable as an unlawful fetter on the discretion of the SSB 141.During opening submissions, I asked the parties whether it could be said that the 2013 Agreement was unenforceable as an unlawful fetter on the SSB’s discretion. 142.A public officer, at common law, is a person holding a position of trust, or of some responsibility, which requires him to, and vested him with the authority, or power, to discharge the functions for public interest: HKSAR v Wong Lin Kay [2011] 2 HKC 409 at [48]-[49] (McMahon J); and (2012) 15 HKCFAR 185 at [17]-[22], [28] (Ribeiro PJ). He cannot by a private agreement undertake to fetter himself in the use of his statutory powers or discretion: Government Park and Playground Keepers Union v Secretary for Justice (unrep., HCAL 180/2002, 10 June 2003) at [25] (Hartmann J). 143.I was initially troubled by this possibility because the HK Council, as the SSB, is responsible for running the Two Schools. The way in which the HK Council discharges the functions would be a matter of public interest. 144.However, ultimately, I do not understand Mr Wong to have pursued a direct argument that the 2013 Agreement was void because it amounted to an unlawful fetter on the HK Council’s duties as an SSB. 145.Instead, he said the fact that the HK Council owed duties as an SSB is relevant in two senses. First, it demonstrates the 1st Action is hopeless because the defendants (as the incumbent registered managers) cannot be compelled to act in accordance with the Company’s M&A or resolutions. Second, it goes to his analysis of the best endeavour clause (Clause 8) of the 2013 Agreement. 146.As explained above, I accept Mr Wong’s submission that the best endeavours obligation has to be construed against the background context of the duties owed by the party undertaking the best endeavours obligation. Clause 8 was expressly stated to be one of applying best endeavours in accordance with EB’s directions, as opposed to an absolute obligation to procure a transfer. 147.In any case, as Mr Pang submitted, under the prevailing EO, there are no provisions that would restrict the transfer of the SSB for a school. All it appears is that a body becoming an SSB must be approved by the Permanent Secretary. The eventual transfer and registration remain subject to the guidelines and approval of the EB and the prevailing EO. Indeed, the letter from the EB dated 10 September 2013 also specified the administrative steps for the “retiring SSB” (the HK Council) and the “substituting SSB” (the Company) to take. 148.Accordingly, on reflection, I think the better view is that the 2013 Agreement is not an unlawful fetter on the HK Council’s duties as an SSB, as it did not seek to impose any absolute contractual duty which would violate the duties owed by the SSB under the EO. J. Whether the Implied Terms are established 149.I turn now to the questions of whether the Implied Terms pleaded by the HK Council were established. 150.The HK Council pleaded three implied terms at [39] of the D&CC. They are: (1) the HK Council shall have unfettered freedom to nominate any representatives to become the IMC “sponsoring body managers” as it deems fit; (2) the HK Council shall have unfettered freedom to nominate any representatives to become the directors on the board of the Company as it deems fit; (3) the composition of the board of the Company based on Article 13 of the Pre-2016 M&A and the Directorship Agreement shall be maintained. 151.In gist, Mr Wong said it is obviously the basis of the 2013 Agreement that the previously adopted practice of the HK Council having the power to appoint up to eight directors was to continue. 152.The applicable principles concerning the implication of terms are largely uncontroversial. Mr Wong advanced four propositions which I do not understand to be materially disputed.
153.The authorities cited by Mr Pang sound a more cautionary note. In Luxor (Eastbourne) v Cooper [1941] AC 108 at 137, it was held that the presumption is against the adding to contracts of terms which the parties have not expressed. The general presumption is that the parties have expressed every material term which they intended should govern their agreement, whether oral or in writing. But I would highlight that at 137-138, the court recognised that:
154.Mr Pang also referred to Ali v Petroleum Co of Trinidad and Tobago [2017] ICR 531 at [7]. A term is to be implied only if it is necessary to make the contract work. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient precondition for inclusion. 155.Mr Pang placed great weight on Lord Hoffmann’s observations in AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at [16]-[17]:
156.Lord Hoffmann went on to discuss at [19]-[24] cases such as Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 and Equitable Life Assurance Society v Hyman [2002] 1 AC 408. Mr Pang submitted that these paragraphs show that where the parties have by expressed terms covered the very subject matter of which the implied term is supposed to cover, an implied term should be presumed against. I note, however, that insofar as Belize amalgamated the law on implied terms with the law of contractual interpretation, it was subject to some adverse comments in Marks and Spencer at [25]-[27](Lord Neuberger). 157.Broadly summarised, Mr Pang’s case against the Implied Terms is as follows:
J2. Whether the Implied Terms are established 158.In considering whether the proposed Implied Terms are established, I think the following factors are pertinent. First, the express terms of the 2013 Agreement. Second, the proper construction of Article 13 of the Pre-2016 M&A. Third, the historical practice of the Company. (i) Express terms of the 2013 Agreement 159.Clause 3 provides that“培英確保會邀請區會委派與培英相同人數代表出席兩所培英中學的法團校董會，以體驗彼此尊重與互相合作。”Therefore, the HK Council is to have the same number of representatives as the Company to be nominated as the “sponsoring body managers” in the future IMCs of the Two Schools. 160.Clause 4 provides that“兩所培英中學的法團校董會校監必須是基督徒，分別由區會代表及培英代表經董事會選舉出任。” It was agreed that the Supervisor of each school should be elected by the HK Council representatives and the Company representatives on the board of the Company by means of a board resolution. 161.According to Mr Wong, the two clauses fortify his proposed Implied Terms. After the HK Council ceases to be the SSB, the two clauses obviously contemplate that the HK Council can continue to participate in the operation of the two schools (ensuring there are representatives at both the IMC level (Clause 3) and at the board level (Clause 4)). 162.In relation to Clause 3, Mr Wong further highlighted the need to “以體驗彼此尊重與互相合作” (“to implement or reflect mutual respect and cooperation”). This must be referring to the longstanding mutual understanding between the parties that (a) they would continue to cooperate closely as “partners” (as they had been for decades) in the operation of the Two Schools, and (b) which cooperation is based upon mutual respect. 163.In relation to Clause 4, Mr Wong said it is designed to give the HK Council considerable say over the choice of the Supervisor, which is a crucial position for the Two Schools. 164.I agree with Mr Wong’s textual interpretation, and that it suggests that the parties contemplated that the HK Council would continue to have very substantial representation in the management of the Two Schools. There was no indication that the existing influence that the HK Council would have in the Company would be changed. It seems to me obvious that the parties objectively intended that it would continue. 165.Mr Wong criticised the translation of Clause 3 in the Company’s SOC and Lee’s first witness statement, which reads “PYHK shall ensure that HKCCCC and PYHK shall be invited to nominate or appoint an equal number of members to the IMC of the respective schools.” Mr Wong said that the clear meaning of “委派” is “appoint”, as opposed to “nominate or appoint”. I agree. As will be explained in further detail below, it is also more consistent with the proper construction of Article 13 of the Pre-2016 M&A. 166.On the other hand, the Company stressed that the use of the phrase “邀請” (“invite”) means that the HK Council did not have unfettered freedom to nominate. However, in my view, the use of “invite” would be accurate given that the Company was going to become the SSB under the 2013 Agreement, which under the EO was the sole designating authority as regards the SSB managers under the IMC. But on the express terms of Clause 3, the Company had promised that it would extend such an invitation. (ii) Proper construction of Article 13 of the Pre-2016 M&A 167.The parties diverge on the proper construction of Article 13 of the Pre-2016 M&A which had effect at the time of the 2013 Agreement. This is particularly relevant to the 2nd and 3rd Implied Terms. Article 13 provides:
168.The M&A of a company is a “statutory contract” between the company and each member and between members: s. 86 of the Companies Ordinance (Cap. 622) (“CO”). Ordinary contractual interpretation principles apply to discover what a reasonable person would have understood the parties to mean, taking into account the context or setting in which a contract was made, and the purpose for which it was made: Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at [15] (Ma CJ); Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296D-I (Lord Hoffmann NPJ); Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] WLR 896 at 912H-913E (Lord Hoffmann). 169.Therefore, I will bear in mind, inter alia, the genesis of the company, the context in which the parties had been operating, and the practical objects that the particular article was intended to achieve. 170.Mr Pang submitted that the Pre-2016 M&A has little bearing on the implied term analysis because the 2013 Agreement is separate from the Pre-2016 M&A and/or the management of the Company. I respectfully disagree. The 2013 Agreement contains the agreement between the parties to “ensure” the HK Council’s participation in the continued management of the Two Schools in circumstances where the HK Council always had substantial influence (entrenched in the Company’s M&A) in the Company. That entrenched influence, in my view, is very important context. 171.It is therefore necessary to consider whether and the extent to which Article 13 of the Pre-2016 M&A empowered the HK Council to nominate/appoint representatives to the board of the Company. The Company’s submissions 172.Mr Pang submitted that the word “nominated” under Article 13(a) did not allow the HK Council to dictate the choice of candidates. 173.Textually, he submitted it is telling that different words were used to describe how directors were to become directors. For instance, some candidates would be “nominated” by an external body, such as the HK Council or the Pui Ying Alumni Association. Meanwhile, some candidates were “selected” within the Company from a finite group of members. “Appointed” was the word used for the principals because they automatically assume office by virtue of the post they were holding. 174.Contextually, he referred to the historical background and the parties’ longstanding practice. As part of what he described as “due process”, the minutes of various AGM from 2007 to 2014 indicate that all director appointments went through a process of “proposing, second, and voting” (“提議，和議，通過”). The lack of formality of the meetings means that those attending the meetings would not be particularly careful to draw distinctions between those who were presently directors, and those who were soon to become directors in receiving proposers and seconders for motions at the meeting. He also referred to Article 56 of the Constitution of the HK Council, which stated that the Company and the HK Council should consult with each other in relation to the appointment of directors. The HK Council’s submissions 175.Mr Wong contended that “nominate” in Article 13(a) can only reasonably be construed as “appoint”. 176.As a matter of textual interpretation:
177.Mr Wong criticised the Company for presupposing that members invariably have the right to appoint directors at common law. He referred to a line authorities to the effect that it is perfectly proper for the M&A to prescribe how directors are appointed: Blair Open Hearth Furnace Co Ltd v Reigart (1913) 108 LT 665; Gore-Browne on Companies at [13-7]-[13-8]; Palmer’s Company Law Vol. 2 at [8.506]-[8.507]. This is uncontroversial. In fact, Mr Pang also accepted that the common law power is subject to the articles: Integrated Medical Technologies Ltd v Mace Nominees Pty Ltd (1988) 113 ACLR 110. 178.Mr Wong alluded to further contextual and historical factors.
179.Mr Wong further submitted that his construction achieves important purposes. First, it ensures the HK Council would have control (or at least substantial influence) within the Company’s governance structure by the right to “appoint” eight directors on the board, and to ensure the Two Schools would be run as Christian schools. Second, it ensures the HK Council can effectively discharge its duties as the SSB by having control over the policies and management of the Two Schools. Third, it preserves other long-standing practices. The HK Council’s right to have eight directors of its choice to be appointed to the board is the rationale or quid pro quo for the HK Council’s “automatic” nomination or endorsement of all directors of the Company to EB as “managers” under the EO to be registered. 180.Next, Mr Wong drew my attention to several authorities where the notions of “nomination” and “appointment” of directors were discussed. 181.In British Murac Syndicate Ltd v Alperton Rubber Co Ltd [1915] 2 Ch 186, the agreement that the right to nominate directors not liable to be defeated by election at general meeting was expressly stated in the shareholders’ agreement and Article 88 of the company’s M&A. Article 88 provided: “The British Murac Syndicate, Limited, so long as it holds at least 5000 shares in the capital of the company shall have the right of nominating two directors on the board of the company, and the directors so nominated shall not be subject to the provisions of articles 95, 96 and 101 hereof”. Articles 95, 96 and 101 dealt with the retirement of directors at ordinary meeting and eligibility for election. At 192, Sargant J dealt with the effect of the agreement:
182.At 195-196, Sargant J said:
183.In essence, Sargant J held that once the directors were nominated, they were in effect appointed. The case further illustrates that there is nothing inherently surprising for the parties to have such intention or agreement even in a private company setting. 184.British Murac was more recently considered by the Singapore Court of Appeal in The Wellness Group Pte Ltd v Paris Investment Pte Ltd [2018] SGCA 47. The Singapore CA addressed the legal effect of an implied contractual term entitling the minority shareholder to appoint a director to the board. It was held that it was not (a) a mere right to nominate director while the company retained full discretion not to appoint, but (b) a right to nominate with a corresponding obligation on the part of the company to appoint, unless the individual nominated was statutorily disqualified or obviously unfit and the appointment would be injurious to the company: [33]. At [34]-[35], the Singapore CA adopted a broadly purposive and commercial approach:
185.I agree with Mr Wong that I should apply the same “purposive approach” in construing Article 13 of the Pre-2016 M&A. He identified the “purpose” of Article 13(a) as ensuring that the HK Council could retain sufficient control on the board to steer the Two Schools according to Christian principles and to effectively discharge its statutory duties as the SSB. Further, such a right and assurance provided the reason for the long-standing practice for the HK Council as the SSB to nominate or endorse all directors of the Company to be registered as managers of the EO SMC. 186.Mr Wong quite rightly accepted that in Wellness Group the implied term did not mean the nomination per se would constitute the nominated person a director. At [33], the Singapore CA subjected the company’s obligation to appoint to two caveats:
187.Whilst the terms implied in Wellness Group very much turned on the specific provisions of the joint venture agreement and the articles in question, to give the nomination right a real purpose, the company should have an obligation to appoint a nominated person save in limited exceptional circumstances. 188.This is consistent with the reasoning in Plantations Trust Limited v Bila (Sumatra) Rubber Lands Limited (1916) 85 LJ Ch 801, a case analysed in Wellness Group. There, the plaintiff agreed to guarantee an issue of debentures by the defendant. In return, the defendant expressly agreed to appoint as directors two persons to be nominated by the plaintiff. Although at Eve J sought to distinguish British Murac, as the Singapore CA noted, Eve J expressed sympathy for British Murac rather than disapproved it. As a result, there appears to be little difference between British Murac and Plantations Trust in practical terms, the primary difference being whether the defendant is required to appoint the plaintiff's nominee in order for him to be constituted a director. 189.Overall, I find Mr Wong’s construction of Article 13 more compelling. As seen from the long-standing course of conduct, there can be little doubt that the HK Council had the practical right to have any director nominated by it appointed, not subject to further veto or selection by members. This conclusion is fortified by the British Murac line of decisions. 190.I disagree with Mr Pang that as a result of this construction, the HK Council could appoint any unsuitable candidate, no matter how extremely unsuitable that candidate is. I agree with Mr Wong that it is futile to take capricious or extreme examples to undermine what the Court should otherwise imply as a matter of common sense and reasonableness. Extreme cases could be controlled by a proper construction, or other implied terms of Article 13 of the Pre-2016 M&A, or the two caveats set out in Wellness Group. 191.In any event, it is not suggested (and it cannot be suggested) that we are dealing with an extreme case. 192.Mr Pang also submitted that the two additional limitations identified in Wellness Group were not the pleaded implied terms as contended for by the HK Council. But I do not think that is relevant given that the present facts do not engage those limitations. Those limitations are only relevant to the argument that extreme cases can be controlled by other legal means. (iii) The evidence and the historical background 193.Mr Wong’s submission that the 2013 Agreement is premised on the continuation of the Company existing governance structure is further fortified by the following evidence:
194.Mr Wong meticulously took me through the minutes of various meetings to demonstrate that since the 1950s and until the 16 December 2015 AGM, all directors nominated by the HK Council under Article 13(a) were invariably appointed without question. 195.Take the minutes of the 9 November 2007 AGM as an example. Item 3(1)(1) stated that “主席歡迎新任校董吳碧珊牧師出席及蔡建中列席會議。” Ng was nominated by the HK Council. She was acknowledged as “新任校董” (newly appointed managers) even before her nomination was voted upon. Various matters relating to auditing, school reports were then discussed. It was only at the end of the meeting at Item 4(4) that the nominations were put to a vote by the members:
196.It is clear that the voting dealt with the re-appointments of new directors by an en bloc acceptance as a mere formality, without subjecting each individual nominee to separate procedure of “proposal”, “seconding” and “voting” – contrary to what Mr Pang submitted. 197.The same pattern was repeated in the 2008 and 2009 AGMs. In the 2 December 2010 AGM, Item 3(1)(i) stated that “歡迎馬志民牧師擔任本校董會校董。” It was not until Item 4(4) that Ma was voted on as a director. More tellingly, at the earlier board meeting of the Company in the afternoon of the same day, Ma was already participating in the discussion and was performing the role as a director. At Item 6:
198.Similarly, at the 6 December 2012 AGM, Item 3(1)(1) stated that “主席歡迎新任校董翁傳鏗牧師出席會議” before Rev Yung was even voted on as a director at Item 4. Again, Rev Yung participated in the earlier board meeting of the Company in the afternoon of the same day. It is striking that Item 3(1)(1) of the board meeting also stated that “主席歡迎新任校董翁傳鏗牧師出席會議。”The same was true for Rev So, who was already actively performing his duty as a director by seconding various motions at the board meeting before he was formally re-elected in the AGM later in the evening. 199.I need not repeat the same analysis for every subsequent meeting. 200.However, at the “watershed” 16 December 2015 AGM, the standard practice was departed from. Item 6.1 recorded: “李主席交代，董事是由會員大會產生。名單是由會員提出，職責上要向全體公布，結果亦經會員大會決定。” From then on, it appears that the practice had changed. The minutes of the 19 December 2016 AGM recorded that:
201.This time, the HK Council nominees were voted on separately from the Company’s nominees. This departed from previous practices in which all candidates were voted on en bloc as a package. Further, Lee emphasised at the meeting that since nobody was “proposing” or “seconding”, Ng and Ma would not be re-elected, and the two seats would be vacated. At the 12 December 2017 AGM, the motion to vote on the four HK Council nominees was again put aside. Lee reiterated that Ma and Ng were not re-elected because “no one was nominating”. 202.I am satisfied that the documentary evidence shows a compelling picture of a consistent historical practice before the 2013 Agreement in which the HK Council nominees, upon being nominated, would start exercising powers and performing duties as directors (and would be accepted by all to be so acting) before even being officially voted in. In addition, all HK Council nominees were voted on en bloc as a matter of mere formality. These go against Mr Pang’s contention that the documentary evidence reveals a “due process” under which all director appointments go through a process of “proposing, second, and voting” (“提議，和議，通過”). The lack of formality of the meetings does not detract from this conclusion. 203.Finally, a running theme in Mr Pang’s cross-examination of the HK Council’s witnesses is that “if the Implied Terms were so important, why did the HK Council not see fit to expressly incorporate them in the 2013 Agreement?” Mr Pang noted that even though the objective of ensuring the Two Schools as Christian schools and retaining the school motto of “Faith Hope Love” (“信望愛”) were understood, they were reduced into writing in the 2013 Agreement under Clauses 1 and 2 respectively. 204.I do not think this argument is compelling. The whole body of law on implied terms consists of examples where obvious terms had not been written out. In any case, given the background of long-standing cooperation between two Christian organisations, I do not find it surprising at all that they did not meticulously provide for all eventualities. J3. Conclusions on the existence of the Implied Terms 205.Accordingly, I uphold the 2nd and 3rd Implied Terms. 206.However, I have come to the view that it is unnecessary for me to express a conclusion on the 1st Implied Term (i.e. that the HK Council should have unfettered freedom to nominate any representatives to become the IMC “sponsoring body managers” as it deems fit). 207.On the 1st Implied Term, Mr Pang submitted that it would fetter the Company’s statutory duty as the SSB after the transfer. Clause 3 of the 2013 Agreement does not contract out of the requirement that the managers in the IMC shall be fit and proper and in compliance with the requirements under the EO. The Permanent Secretary still has the power under s. 30(1)(b) to refuse to register an applicant as a manager. 208.Mr Wong accepted that the HK Council has not pleaded the Company’s denial of the 1st Implied Term as a repudiatory breach. He nevertheless submitted that in light of the Company’s conduct and continued insistence on the AGM Requirement, it is inevitable that the HK Council’s representatives to the IMC would be subjected to the same “disingenuous and arbitrary attitude” of the PYSS-alumni controlled board. 209.In my view, the 1st Implied Term cannot surmount the following difficulties. First, the HK Council only counterclaimed for a declaration for the discharge of the 2013 Agreement, as opposed to how the SSB managers are to be appointed. Second, the analysis above regarding the (i) proper construction of Article 13 of the Pre-2016 M&A and (ii) the historical practice of the Company pertains only to the nomination/appointment of directors. They have little bearing on the future composition of the IMC. Third, it is common ground between the parties that the only alleged outstanding obligation on the part of the HK Council is Clause 8 – to make best endeavours to assist the Company to obtain the EB’s approval as the new SSB in accordance with the EB’s instructions. J4. Breach of the 2nd and 3rd Implied Terms 210.The HK Council’s case is that the Company had breached the Implied Terms first by raising the Alumni Qualification since late 2014, and then by raising the AGM Requirement in late 2015. It is said that both are wrongful means to undercut the HK Council’s right under the 2013 Agreement and the corporate structure of the Company. 211.Given that I do not attribute the insistence on Alumni Qualification to the Company, I focus on the Company’s insistence on the AGM Requirement, which in my view was in breach of the 2nd and 3rd Implied Terms. 212.As Mr Wong submitted, during the 16 December 2015 AGM, the alumni members for the first time in the history of the Company argued thatmembers had the right to veto or select the directors nominated by the HK Council. During the meeting, the alumni members sought to subject the directors nominated by the HK Council (Rev So and Rev Yung) to a vote. The members purported to vote Rev So out by relying on a member’s objection to his nomination. Lee subsequently converted it into a motion to invite the HK Council to nominate another director in place of Rev So. Subsequently, the AGM Requirement was invoked at various meetings, resulting in the eventual reduction of the number of the HK Council directors on the board of the Company to just one by 2018. In particular:
213.Accordingly, the 2nd and 3rd Implied Terms had been breached both at the time of the writ and at the time of the hearing. 214.This makes it unnecessary for me to rule on whether the further “miscellaneous wrongful acts” by the Company constituted further breaches of the 2013 Agreement, as contended by Mr Wong. Those complaints include:
K. Bars to specific performance 215.As an equitable remedy, specific performance is often said to be “discretionary”. But that discretion is not unfettered. It is determined by well-established principles with respect to the various clearly established bars to specific performance: Geys v Société Générale [2013] 1 AC 523 at [116] (Lord Sumption); Burrows, Remedies for Torts, Breach of Contract, and Equitable Wrongs (4th edn) at 402; Snell’s Equity (34th edn) at [17-004]. 216.Mr Wong raises a wide range of potential bars, including the claimant’s lack of readiness and willingness to perform, “unclean hands”, lack of mutuality, constant supervision, and hardship caused to third parties. They will be addressed in turn. K1. Whether the claimant was “ready, willing and able to perform” 217.Where the agreement involves continuing or future acts to be performed by the plaintiff, a claim for specific performance will fail unless the plaintiff can show that he is ready and willing to perform.In Australian Hardwood Pty Ltd v Commissioner for Railways [1961] 1 WLR 425 (PC), the Privy Council refused specific performance of a contractual obligation to take steps to ensure the transfer of a sawmill licence because of the claimant’s own breach. At 432-433 (Lord Radcliffe):
218.Likewise, in Lau Suk Ching Peggy v Ma Hing Lam (2010) 13 HKCFAR 226, Ribeiro PJ said:
219.Mr Wong therefore submitted that a claimant has to demonstrate that both at the date of the writ and at the date of judgment, he is (and was) ready, willing and able to perform the contractual obligations. The reason why the relevant time includes the date of the writ is to do justice to the party who is meeting a claim for specific performance. It would be unjust for that party to be subject to a decree of specific performance when the claimant, when proceedings were issued, was not ready, willing and able to perform his side of the bargain. 220.Mr Pang submitted that the proper understanding of [49] of Lau Shuk Ching Peggy is that it is sufficient if, both at the writ and the date of decree, the plaintiff is (and was) ready, willing and able to do whatever the contract on its true construction required, even though the plaintiff was under a misapprehension that the true requirement of the contract was different from the one that the court ultimately holds. So long as the plaintiff was ready, willing and able at the date of the writ to do whatever the court ultimately held was the true construction, that is sufficient. 221.Mr Pang further submitted that there is no injustice because ultimately that result just means that the court is making orders to put the parties in the position which the true construction of the contract requires them to be put in. 222.On reflection, I think I can decide this part of the case on the ground that whatever is the requirement concerning the plaintiff’s readiness willingness and ability to perform his side of the bargain as at the date of the writ, as long as at the time of judgment, the plaintiff is still insisting on a wrong construction of the agreement (and therefore not ready willing and able to perform his side of the agreement), that would constitute a bar to specific performance. That is because I agree with Mr Wong that it is unfair on the party against whom specific performance is sought, if the party seeking specific performance is still insisting on not performing his side of the true bargain at the date of judgment. It is ultimately a very serious thing for party to be subject to a court decree of specific performance, and I do not believe it is right (at least in the circumstances of this case) for the HK Council to find itself the subject of a decree of specific performance when all along, even up to the date of judgment, the Company is still insisting on the AGM Requirement, which I now hold to be a breach of the 2013 Agreement. 223.Therefore, I would refuse to decree specific performance of the 2013 Agreement on this ground. 224.Perhaps I should also say that I am less sure about whether I should bar specific performance simply because the claimant was insisting on an erroneous construction of the agreement as at the date of the writ. It is not immediately obvious to me why the court should bar specific performance, if, say, the claimant swiftly gave up the insistence on the wrong construction when he came to file his pleadings. It would seem to be much less obviously unfair for the defendant to be subject to a decree of specific performance at the end of the trial, if the case has been fought (say for years) on the basis that the claimant has given up his wrong construction of the contract at an early stage. 225.Mr Wong next submitted that mutuality of obligations is a prerequisite for granting specific performance. In Price v Strange [1978] Ch 337, the defendant, the head lessee of some flats in a house, orally agreed to grant the claimant a new underlease of his flat in return for the claimant’s promise to carry out certain repairs to the house. The claimant did half the repairs, but the defendant refused to allow him to complete them and refused to grant the underlease. Buckley LJ formulated the test as follows (at 367J-368A):
226.Mr Wong said the HK Council very much depended on the Company’s good faith in ensuring that its rights under the 2013 Agreement (both the express and the Implied Terms) both at the IMC level and at the board level of the Company are protected. Those rights are specifically enforceable because any loss of control due to the Company’s failure and/or refusal to honour its part of the bargain is not capable of being compensated by damages. 227.As I read it, this is closely related to the “ready and willing to perform” requirement. In essence, it is the same complaint that since the Company is still insisting on the AGM Requirement, the Court cannot be sure that the Company will perform its outstanding obligations under the 2013 Agreement and it is unfair to decree specific performance against the HK Council now. On this basis, I will likewise refuse specific performance on this ground. 228.One who comes to equity must come with clean hands. By this maxim, specific performance is denied to a claimant whose past conduct has been highly improper. Mr Wong cited Roger VP’s judgment in Ng Yat Chi v Max Share Ltd & anor [2001] 1 HKLRD 561 (CA) (at 573D): “It seems to me that it cannot be right that a person can rely on principles of justice and equity when he founds his claim on an agreement which not only has he not honoured but has deliberately abused.” In that case, the “equity sued for” was a winding-up order on the just and equitable ground. In refusing leave to appeal, Ribeiro PJ similarly said in (2001) 4 HKCFAR 299 at 302I:
229.But one needs to be cautious because all this was said in the context of the just and equitable winding-up jurisdiction. Roger VP in fact distinguished Lord Cross’s dictum in Ebrahimi because Ng Yat Chi was concerned with a deliberate abuse of position (siphoning off of profits) which fundamentally negatived the original agreement of mutual trust and confidence, as opposed to misconduct that was merely causative of the breakdown: 573A-D. The abuse was so fundamental that Rogers VP did not actually analyse whether this was indeed an application of the “clean hands” maxim: 572G. 230.The English Court of Appeal expressed the bar in more cautious terms. In RBS v Highland Financial Partners [2013] 1 CLC 596, Aiken LJ held at [159] that the scope of application of the “unclean hands” doctrine is rather limited:
231.This paragraph was cited with approval in Snell’s Equity (34th edn) at [5-010]. The learned author stressed that the question is not whether any general moral culpability can be attributed to the party seeking relief. Rather, one asks whether relief should be denied because there is a sufficiently close connection between that party’s alleged misconduct and the relief sought. In Spry, Equitable Remedies (9th ed) at 5:
232.This notion of “immediate and necessary relation” requires that (1) such misconduct must be wanting in good faith (2) it must be “in the transaction” which is the basis of the suit. The court does not conduct a balancing exercise of the improprieties on each side: Sang Lee Investment v Wing Kwai Investment [1983] HKLR 197 at 208E, 209G (PC) (Lord Brightman). 233.I believe the takeaway from this limited review of authorities is that the doctrine is to be applied cautiously. It is certainly not the case that whenever a claimant has done something in the course of the history of the dispute which may attract criticism, a decree of specific performance will be refused. It is a fact-sensitive analysis that examines all relevant factors to see if the misconduct is sufficient to warrant the refusal of the relief sought: RBS v Highland Financial Partners at [159]. 234.What then, is the “misconduct” complained of? Mr Wong said:
235.Mr Pang replied that none of the alleged misconduct had an immediate and necessary relation to the specific performance sought:
236.I have concluded above that the Company’s insistence of the AGM Requirement constitutes a breach of the 2nd and 3rd Implied Terms. It does not matter whether the Company genuinely believed in the AGM Requirement. It is clear that the conduct which could be taken into consideration is not confined to fraud or dishonesty: Spry at 423-429. It also includes “equitable fraud”, arising through breach of trust or “other conduct by the plaintiff sufficiently related to the cause of action”. It covers the situation where a plaintiff has acted unlawfully in relation to the subject matter of the action, and continues to act unlawfully, and it is unconscionable to grant the relief sought: Spry at 423-429. 237.The Company’s breaches clearly had an immediate and necessary connection with the specific performance sought. The HK Council’s rights to participate in the management of the Two Schools was a major quid pro quo that induced it to enter into the 2013 Agreement. I agree with Mr Wong that it is inequitable to require the HK Council to specifically perform the 2013 Agreement when the “planks” upon which the HK Council agreed to assist in the transfer were removed. Further, the Company’s breaches persisted and spanned a long period of time since 2015. 238.Accordingly, the Company’s breaches are sufficiently to trigger to “lack of clean hands” bar to specific performance. 239.In light of my holding that the Company had committed a breach of the 2013 Agreement by insisting on the AGM Requirement, and that amounted to “unclean hands”, has the Company sufficiently “washed its hands” by stating that it will abide by the court’s ruling on whether the AGM Requirement exists? 240.In RBS v Highland Financial Partners at [159] and [164], Aikens LJ clearly considered that a party who acted with unclean hands could “wash them”. A summary judgment was granted in favour of RBS followed by a quantum trial. Subsequently, RBS sought a permanent anti-suit injunction to restrain some Texas proceedings. The misconduct arises from (1) RBS not accepting the judge’s findings made in the quantum judgment and (2) the perjury committed by RBS’s key witness in trying to challenge the findings in the quantum judgment. If RBS had instead accepted the conclusions made in the quantum trial, its “unclean hands” would have been washed – even those challenges had already been pleaded. At first instance, Burton J similarly stated that “a claimant can wash its hands i.e. a conclusion can be reached by the court that any previous misconduct is and can be explained or exonerated, if not persisted in”: [2012] 2 CLC 109 at 195, 198 (upheld on appeal on this point); citing with approval Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th edn.) [3–130]. 241.In Harbour Front Ltd v Money Facts Ltd and others [2018] HKCFI 2596, Harbour Front sought an interlocutory injunction against the defendant companies to restrain them from selling a piece of land. DHCJ Kenneth Wong held that Harbour Front demonstrated serious issues to be tried that it had made real effort in purging its past wrongs: [29]-[32]. An interlocutory injunction was accordingly granted in favour of Harbour Front. Those steps of “repentance” included offers to settle the dispute with the tendering of a cheque. His Lordship did not consider the steps as being taken too late so as to permanently bar Harbour Front from participating in the management of the companies. There was no deadline imposed whether in previous judgments or otherwise on Harbour Front to remedy its previous wrongs: at [31]. 242.In the related proceedings in the Harbour Front litigation, failure to “wash hands” was mentioned in the context of unfair prejudice and just and equitable winding-up. In [2018] HKCFI 358, Harris J found that Harbour Front had made no sensible effort to remedy those past breaches and “this will remain the case until such time as Harbour Front takes genuine and substantial steps to remedy its misconduct”: at [42]. 243.It is worth noting that the relief of just and equitable winding up and unfair prejudice are very different from specific performance. Although they all draw upon equitable considerations, both the just and equitable winding up and unfair prejudice jurisdictions are founded on statute. 244.Mr Wong made two additional observations. 245.First, a plaintiff may not be permanently and absolutely barred from seeking equitable relief by reason of his past breaches if there had been some genuine and substantial steps to remedy the misconduct which gave rise to the equitable bar. In Littlewood v Caldwell 147 ER 413, the plaintiff’s application for an injunction application was refused because he acted improperly. However, the Court made clear that the dismissal was “without prejudice ... to any future application which may hereafter be thought adviseable to make”: at 414. 246.Second, nonetheless, such past breaches remain relevant to the Court’s discretion in granting or refusing equitable relief, though perhaps they could be of diminishing relevance by reference to any attempt to remedy them, their materiality, and/or lapse of time etc. The learned authors commented in Spry on Equitable Remedies, 9th edn. (2014) that:
247.Mr Pang submitted that even if the Alumni Qualification or the AGM Requirement was found to have demonstrated unclean hands, the former had certainly been cleaned after the judgment delivered by Harris J, and the same goes for the latter when the true position is decided by the Court, as there is reasonable ground to believe that the AGM Requirement will be rectified after the Court order. 248.In my view, it is still appropriate to take into the Company’s past breach of the 2nd and 3rd Implied Terms by insisting on the AGM Requirement. I agree with Mr Wong that it would not be right for me to order the HK Council to perform Clause 8 on the terms that the Company would rectify its wrongs. Here, the subject matters requiring cleansing are not simple events such as repaying a sum. The Court will have to be satisfied that the Company will be desist from further conduct that fetters the HK Council’s rights to nominate any representatives to become the directors on the board in accordance with Article 13 of the Pre-2016 M&A. 249.To a large extent this is to give effect to the same idea which underlines my conclusion on “readiness, willingness and ability to perform”. I think it would be wrong, at least in the circumstances of this case, to decree specific performance where the wrong construction on the AGM Requirement has been insisted upon by the Company up to the date of judgment. 250.In light of my conclusions above which would lead me to refuse specific performance, it is unnecessary for me to address Mr Wong’s further submissions on constant supervision, breakdown of mutual trust and confidence, and hardship caused to third parties. L. Equitable overlay on the Company’s contractual rights under the 2013 Agreement 251.For completeness I will also briefly record Mr Wong’s submission that even if I did not find the Company to be in breach, and that the alumni members did have the power to approve to veto the HK Council nominated directors, the relationship of mutual trust and confidence between the parties nevertheless means that the voting rights by the members remain subject to equitable controls. Mr Wong invoked a wide range of equitable doctrines:
252.Intriguing as these concepts are, since I have found that specific performance is barred for the Company’s breaches of the Implied Terms, it is unnecessary for me to address the arguments that there is some equitable overlay imposed on the Company’s contractual rights under the 2013 Agreement. M. Whether the Company’s breaches of the Implied Terms amounted to a repudiation 253.The HK Council counterclaims for a declaration that the Company has acted in repudiatory breach of the 2013 Agreement, and upon the repudiation being accepted by the HK Council by the filing of their pleadings herein, the HK Council is released from the obligations thereunder. I will therefore have to decide whether the Company had acted in repudiatory breach. 254.It is necessary to first identify the nature of the Implied Terms. I do not understand Mr Wong to be contending that the Implied Terms amount to “conditions”, a breach of which (no matter how small the extent) would entitle the innocent party to terminate and bring the contract to an end. 255.It would appear that the modern approach is that most contractual terms are regarded as “innominate terms”. See Ark Shipping Co LLC v Silverburn Shipping (IoM) Ltd [2019] EWCA Civ 1161 at [81] (Gross LJ); Burrows, A Restatement of The English Law of Contract (2nd edn, 2020) at 119. 256.I would hold that the Implied Terms are “innominate terms”, a breach of which does not necessarily amount to repudiation. I can readily see how the Implied Terms could be breached in a number of ways which should not amount to repudiation e.g. by an adoption by the Company of a wrong construction at one AGM and then swiftly changing its mind upon bona fide consideration of views put to them by the HK Council. 257.Whether a breach of an innominate term amounts to repudiation turns on the seriousness of the consequences of the breach. The test is whether the innocent party is being deprived of substantially the whole benefit of the contract: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 70 (Diplock LJ); or whether the breach goes “to the root of the contract” at 63-64 (Sellers LJ). Those principles are applicable because in the present case there is no provision in the contract, whether expressly or by necessary implication, to the effect that the term is a condition: Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1 at [62] (Chan PJ). 258.Accordingly, I invited counsel to make submissions on the principles governing when the adoption of a wrong construction of a contract would amount to repudiation. 259.This distinction was drawn by Lord Wilberforce in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 at 283:
260.In his concurring speech, Lord Keith accepted that the critical question is “whether, having regard to all the circumstances, the conduct of the appellants… was such that a reasonable person in the position of the respondents would properly infer an intention… to refuse to perform the contract when the time came for performance” (at 296). Lord Scarman similarly criticised the Court of Appeal for concentrating too much attention on one act isolated from its surrounding circumstances and failing to pay proper regard to the impact of the party’s conduct upon the other party (at 299). 261.Contrast this with the proposition in The Nanfri [1979] AC 757, in which Lord Wilberforce appears to have taken more hardline approach at 780:
262.In Dalkia Utilities Services plc v Celtech International Ltd [2006] 1 Lloyd’s Rep 599 at [148]-[149], Christopher Clarke J attempted to reconcile the two cases. He said that the repudiation in The Nanfri consisted of an “act” – the instruction of the master not to sign pre-paid bills of lading, who immediately substantially deprived the charterers of virtually the whole benefit of the charter. By contrast, the notice of termination in Woodar did not have such consequences. 263.Master Marlene Ng (as she then was) also addressed this question in Rai Narayan Parshad v Chit Hing Construction Engineering[2011] 1 HKLRD 217 at [57] and applied an “objective” test:
264.Her Ladyship accepted the distinction in the case law between a party asserting an erroneous interpretation of the contract and a breach of contract with serious consequences. She cited Cheung JA’s decision in Creatiles Building Materials Co Ltd v To’s Universe Construction Co Ltd [2003] 2 HKLRD 309. At 319, Cheung JA held that it may not be a repudiation for one party to put forward his genuine but bona fide, interpretation of what the contract requires of him. However, where that party performs in a manner that is inconsistent with the terms of the contract, it is no defence for that party to show that he acted in good faith. 265.While the English and the Hong Kong authorities focus on how far the party adopting the erroneous construction has conducted itself, a line of Australian authorities introduces a different perspective by placing greater weight on the degree of unreasonableness of the particular construction. In Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127 at [17] (Maxwell P and Kellam JA) (a case cited in Rai Narayan Parshad), it was held that:
266.In my view, the two lines of authorities are not necessarily contradictory or mutually exclusive. They are two sets of indicia towards the ultimate question – whether the acts or conduct amount to an intimation of an intention to abandon and altogether to refuse performance of the contract. It is ultimately a highly fact-sensitive issue: Eminence Property Developments Ltd v Heaney [2011] 2 All ER (Comm) 223 at [61]-[62]. 267.Mr Pang emphasised that repudiation is a drastic conclusion. He stressed that the real matter for consideration “is whether the acts or conduct of the one do or do not amount to an intimation of an intention to abandon and altogether to refuse performance of the contract”: Freeth v Burr (1873-74) LR 9 CP 209 at 213; The Hermosa [1982] 1 Lloyd’s Rep 570 at 572. In other words, whether the repudiation goes to the root of the contract: Woodar at 298B-C (Lord Scarman). Mr Pang cited Vaswani v Italian Motors [1996] 1 WLR 270, a Privy Council appeal from Hong Kong in which the price for a Ferrari was wrongly quoted. He submitted that whilst the price must have been fairly fundamental to the contract, it nevertheless did not amount to a repudiatory breach. (i) Alumni Qualification 268.Mr Wong invited me to hold that the Company’s insistence of the Alumni Qualification had gone far beyond a mere assertion of its mistaken interpretation of Article 13 of the Pre-2016 M&A. In light of my conclusion that the Company should not be held to have insisted on the Alumni Qualification, I am unable to accept this submission. (ii) AGM Requirement 269.In relation to the AGM Requirement, Mr Wong argued that the Company’s insistence of the AGM Requirement to this date has resulted in a significance tilting of the balance in the composition of the board of the Company. The AGM Requirement had since been invoked in various AGMs to refuse the appointment of the HK Council nominees. In other words, the Company had acted upon the erroneous interpretation to a significant extent. 270.In reply, Mr Pang submitted that the Company’s insistence on nomination and election does not indicate an intention to abandon the 2013 Agreement:
271.I agree with Mr Pang. In the circumstances, in my judgment, in relation to the AGM Requirement, the Company was only putting forth an alternative construction which I now hold to be wrong. That is not a sufficiently fundamental breach of the 2nd and 3rd Implied Terms. Whilst the Company had acted on the AGM Requirement, I do not think it had at any time evinced an intention not to perform the 2013 Agreement as a whole. I would also agree with Mr Pang that, objectively, the Company’s stance should be taken as that it would abide by a court’s ruling, as it has done in respect of the Alumni Qualification. 272.For the above reasons, I would hold that the Company’s breaches amounted to a repudiation of the 2013 Agreement. I would hold that the 2013 Agreement remains on foot, and would therefore refuse the declaration to the contrary sought by the HK Council. 273.The parties are agreed that once all issues under the 2nd Action are adjudicated, the disputes in the 1st Action will be rendered academic. Mr Pang accepted in his closing submissions that if no specific performance is ordered, the Company could not become the SSB of the Two Schools, and it cannot insist on the relief sought in the 1st Action. I would therefore dismiss it. 274.In relation to the 2nd Action, I dismiss the Company’s claim for specific performance. I also dismiss the HK Council’s counterclaim for a declaration that they be released from the performance of the 2013 Agreement. The 1st Action is also dismissed. 275.I shall make a costs order nisi that: (i) in the 2nd Action, the Company shall pay 70% of the HK Council’s costs, to be taxed if not agreed, to reflect my refusal to grant the declaration that the 2013 Agreement has been discharged; (ii) in the 1st Action, the plaintiffs shall pay the defendants’ costs, to be taxed if not agreed. The nisi order will become absolute if neither party applies for variation of it within 14 days. 276.It remains for me to register my gratitude to the legal representatives for conducting this trial with courtesy, proportion and professionalism.
Mr Robert Pang SC, Mr Timothy Y.H. Wong, and Mr Gilbert Chong, instructed by Dundons Solicitors, for the Company (in HCA 3314/2016) and the plaintiffs (in HCA 1991/2016) Mr Wong Yan Lung SC, Mr Adrian Lai, and Mr Vincent Chiu, instructed by F. Zimmern & Co. for the HK Council (in HCA 3314/2016) and the defendants (in HCA 1991/2016) [1] The 3rd plaintiff (“Li CK”) has discontinued the action. [2] The action against the 5th defendant (“Fung”) was discontinued. [3] The M&A of the Company passed on 27 June 2016 was registered on 4 August 2016 (the “2016 M&A”). Under the 2016 M&A, in relation to the appointment of director stipulated in Art. 19 (the equivalent of Art. 13 of the Pre-2016 M&A), the word “School” is replaced by “Company”. |
Cases cited in this judgment
Further hearings and rulings under HCA 1991/2016