Au Yeung, Cheuk Nam v. Chu Wa Ming
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DCCJ 2179/2021 [2024] HKDC 2075 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 2179 OF 2021 --------------------------------
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-------------------------------- JUDGMENT -------------------------------- I. INTRODUCTION 1.This is a trial of an action commenced by the plaintiff against the defendant based on oral agreements in relation to investment in a company starting up a business of a match-making app. 2.The plaintiff was an airline pilot. The defendant has been a director and shareholder of a Hong Kong limited company named Chocodate Matchmaker Limited (the “Company”) carrying on a match-making business via an app named “Knockknock” (the “App”). The Company was incorporated on 18 January 2018. According to the records filed with the Companies Registry, for the period from 15 January 2019 to 13 May 2021, the defendant was the sole shareholder and sole director of the Company. 3.Under the Technology Voucher Programme (the “TVP”) operated by the Government via the Innovation and Technology Commission (“ITC”), the Company was eligible to apply for government fund for the development and operation of the App. Thus, on 19 March 2019, the defendant, on behalf of the Company, submitted an application form for the fund. For convenience, I shall refer to this application as the “TVP Application”. 4.The process leading to the grant of fund after the TVP is, briefly: (1) after an application is made, the application would be assessed (§§25-30 of the TVP Guidelines); (2) then the applicant would be notified of the result, and a successful applicant would be required to enter into a funding agreement (§§31-32 of the TVP Guidelines); (3) an initial funding would be made available upon signing of the funding agreement and ITC’s verification of evidence showing due contribution of funds by the applicant on a matching basis (§§40 and 43 of the TVP Guidelines); (4) the applicant would have to submit such a final project report (§45 of the TVP Guidelines); and (5) the final payment will be made to the applicant upon project completion and ITC’s acceptance of the final project report (§44 of the TVP Guidelines). 5.The application form contained a declaration, among others, that the defendant had read the Guidance Notes for Applications (the “TVP Guidelines”) as at that time. Paragraph 52(e) of the TVP Guidelines provided that:-
6.Thereafter, the defendant looked around for investors to invest into the Company. Chui Hong Lam Kiri (“Kiri Chui”) was among them. In August 2019, Kiri Chui invested HK$200,000 into the Company. Subsequently, more investors joined, and a Whatsapp group was set up among the defendant and other investors of the Company (the “Whatsapp Investors Group”). 7.The plaintiff would be another investor. He and the defendant met for the first time on 2 February 2020. 8.The defendant’s evidence, which is unchallenged by the fair conduct of Mr Cedric Yeung, counsel for the plaintiff, is that also in February 2020, the Company received the initial funding under the TVP Application. 9.On or around 7 and 8 March 2020, the plaintiff and the defendant orally agreed that the plaintiff shall acquire some shares in the Company. 10.On 7 March 2020, in the Whatsapp conversation between the plaintiff and the defendant (the “Whatsapp P&D Chat”), where the plaintiff was referred to by his English name “Benson”, they had the following conversation:-
11.On 8 March 2020, in the Whatsapp P&D Chat:-
12.On 27 March 2020, the plaintiff paid HK$50,000 to the Company’s bank account. 13.On 10 April 2020, in the Whatsapp P&D Chat:-
14.On the same day, in the Whatsapp conversation between the defendant and Kiri Chui (“Whatsapp D&Kiri Chat”):-
15.In the Whatsapp Investors Group, on 13 April 2020, by which time the plaintiff had joined the group, the defendant wrote:-
16.On 25 May 2020, the defendant sent the plaintiff a Whatsapp voice message, saying:-
17.Similarly, in the Whatsapp P&D Chat:-
18.The plaintiff chose the latter, that is, to sign the documents in one go after the change of name. 19.In around August 2020, Kiri Chui quit the investment. Correspondingly, on 3 August 2020, in the Whatsapp Investors Group, the defendant wrote:-
20.On 4 August 2020, in the Whatsapp P&D Chat:-
21.On 11 August 2020, in the Whatsapp D&Kiri Chat:-
22.On 12 August 2020, in the Whatsapp P&D Chat:-
23.On 17 August 2020, in the Whatsapp P&D Chat:-
24.Between 13 August and 20 August 2020, the plaintiff paid a total sum of HK$200,000 into the defendant’s personal account for the 13% increase. 25.In or around October 2020, Ms Isabella Tse (“Isabella Tse”) approached the plaintiff expressing her interest in acquiring 2% of the shareholding of the Company from the plaintiff. 26.On 13 October 2020, in the Whatsapp P&D Chat:-
27.In late November or early December 2020, the defendant submitted an application to the HK Cyberport Management Company Limited for funds under the Cyberport Incubation Programme (“CIP”). In the form, the following company structure was represented:-
This was not true because at that time the defendant was still the sole shareholder. 28.The form further provided that:-
29.However, no such declaration was made despite the pending TVP Application. 30.Around the same time, the Company was also preparing an application to a scheme named iDendron managed by the University of Hong Kong (“HKU”) for funding to the business. Only businesses owned by HKU-related persons like HKU alumni as to at least 20% were eligible to apply. At one point of time, a draft application form was prepared in such a way to say that Priscilla Law and James Chan, the only HKU alumni among the investors, owned 30% and 20% respectively. Again, this was not true, because at that time, the defendant was the sole shareholder. 31.On 6 January 2021, the plaintiff and the defendant had a face-to-face meeting. On the plaintiff’s case, the plaintiff demanded for a refund of HK$250,000 from the defendant. On the defendant’s case, the plaintiff told him that the plaintiff would like to withdraw his investment from the Company and asked if the defendant would buy his interest in the shares, but the defendant proposed that the plaintiff could sell the same to a third party. 32.On 23 February 2021, the TVP Application was approved. 33.On 9 March 2021, the defendant emailed the Company secretary:-
34.On the same day, the Company passed a board resolution for approving allotment of shares, to be “effective on after the company name changed”. 35.On 30 April 2021, the plaintiff sent a demand letter dated 27 April 2021 prepared by his solicitors to the defendant by Whatsapp. The demand letter reads:-
36.On 7 May 2021, a Form NNC2 was lodged with the Companies Registry effecting the change of the Company’s name form “Chocodate Matchmaker Limited” to “Knocknock Solution Limited”. 37.On 8 May 2021, the defendant himself emailed the plaintiff saying that:-
38.On 11 May 2021, the plaintiff issued the Writ of Summons of this action. 39.On 13 May 2021, the defendant signed a Form NSC1 to allocate shares to different investors, including the plaintiff. 40.On 24 June 2021, the plaintiff himself emailed the defendant:-
II. PLAINTIFF’S CASE 41.The plaintiff’s case is that:-
III. THE DEFENDANT’S CASE 42.The defendant’s case is that:-
IV. ISSUES 43.The issues are:-
V. WHETHER THE PARTIES ENTERED INTO THE PLAINTIFF’S PURPORTED ORAL AGREEMENTS, THE REVISED DEFENDANT’S PURPORTED ORAL AGREEMENT AND/OR THE ASSIGNMENT AGREEMENT 44.Given that the agreements of both sides’ versions are oral and the dispute is what the terms were, conduct subsequent to the making of a contact can be considered in determining whether there was a contract and what the terms are: Chitty on Contracts (35th ed) §16-061. 45.There are three parts contained in this issue for my determination, namely: (1) how the parties reached the 15% shares; (2) how much the plaintiff paid the defendant; and (3) whether the shares the plaintiff was to acquire would be by way of shares transferred from the defendant or allotted from the Company. A. How did the parties reach the 15% shares? 46.For the question of how the parties reached the 15% shares, I start with the analysis of the Whatsapp text messages, which are contemporaneous documentary evidence of the parties’ intention.
47.The above is largely consistent with the defendant’s case about how the 15% was come about. 48.On the contrary, the plaintiff’s original statement of claim filed back in 2021 before the exchange of the witness statements in June 2022 simply avers that by an oral agreement in March 2020, the plaintiff and the defendant agreed that the defendant agreed to sell 15% shares of the Company to the plaintiff for HK$250,000. Consistently, the plaintiff’s witness statement also only refers to an oral agreement, in singular, in March 2020. Only on 7 August 2023 the statement of claim was amended so that the singular agreement in March 2020 was changed to “agreements” in plural in March and August 2020. The plaintiff explained during oral evidence that when he commenced the action, to his mind, the ultimate agreement he had was to acquire a total of 15%, and thus, he stated this way in the original statement of claim and the witness statement. I accept that this mistake was inadvertent only, given that he would not gain anything by making this mistake. However, where the reliability of the plaintiff is a crucial issue, I would of course bear this in mind. 49.Having considered the above, I find that the parties agreed to the 15% as described by the defendant. 50.There is a dispute over whether the 13% agreement was an agreement between the plaintiff and the defendant as alleged by the plaintiff, or an agreement between the plaintiff and Kiri Chui as alleged by the defendant. As mentioned in §19 above, the defendant told all the investors including the plaintiff in the Whatsapp Investors Group that he had bought Kiri Chui’s entire shares (strictly speaking, Kiri Chui’s entitlement to the shares). Objectively speaking (the subjective mind of a contractual party not made known to the other contractual parties being irrelevant as a matter of law), in this context, the plaintiff would have thought that he was therefore dealing with the defendant for the shares which the defendant had just bought from Kiri Chui, especially when there is no evidence to show that the defendant had somehow expressed to the plaintiff that the defendant was acting on behalf of Kiri Chui. Although from Kiri Chui’s perspective and/or from the defendant’s perspective, the defendant was a middleman between Kiri Chui and the plaintiff, this would be a matter between the defendant and Kiri Chui only. Further, assuming that the defendant was a middleman, Kiri Chui, whom the defendant did not disclose as his principal, would at most be an undisclosed principal only. As between the plaintiff and the defendant, the 13% agreement was still an agreement between the plaintiff and the defendant only. 51.Therefore, I find that for the 13% agreement, it was an agreement between the plaintiff and the defendant. 52.Before I turn to the next issue, it is an appropriate juncture to deal with Mr Yeung (counsel for the plaintiff)’s submissions that the defendant’s evidence about what he bought from Kiri Chui was self-contradictory. On the one hand, he said (as mentioned above) in the Whatsapp that he bought the entire shares from Kiri Chui and he only paid HK$200,000 to Kiri Chui; on the other hand, he told the plaintiff in the Whatsapp (see §20 above) that he was offering Kiri Chui HK$240,000 for the 16% shares, selling 13% to the plaintiff for HK$200,000. On this matter, the defendant’s oral evidence was, for the first time, that he himself bought 3% from Kiri Chui. However, Kiri Chui’s evidence here is that she did not receive more than HK$200,000. Mr Yeung submits that this undermines the defendant’s and perhaps also Kiri Chui’s credibility. What appears to me is, in support of the plaintiff’s case that the plaintiff bought the 13% shares from the defendant, that there were two transactions, one between the plaintiff and the defendant, and one between the defendant and Kiri Chui. In respect of the transaction between the plaintiff and the defendant, the defendant may not be telling the whole truth to the plaintiff when he was selling Kiri Chui’s shares to the latter, apparently making the deal sound more attractive. In respect of the transaction between the defendant and Kiri Chui, Kiri Chui’s evidence is that she did not have clear recollection about the deal with the defendant and did not really care any extra beyond the HK$200,000 because the HK$200,000 was her cost and she was already happy that her whole cost was fully covered. In my view, whether it was 13% for HK$200,000 or 16% for HK$240,000 is not an issue the parties were prepared to address, because even on the defendant’s own case, it was 13% for HK$200,000 (see §42(14) above). The issue that it was 16% for HK$240,000 was raised only during the oral evidence, and I would not expect the witnesses to be able to address this issue with as much clarity as issues crystalised from the pleadings. B. How much did the plaintiff pay the defendant? 53.As regards how much the plaintiff paid the defendant in total, from the message quoted in §§13 – 14 above, it is clear that in April 2020, after the parties agreed that the plaintiff would acquire 2%, the defendant intended to pay the HK$10,000 to the plaintiff. There is also no dispute that the plaintiff had not appeared to chase the defendant to pay the HK$10,000, not even when the defendant was selling the 13% shares to the plaintiff in August 2020, whether in the Whatsapp P&D Chat or otherwise. Further, the plaintiff agreed with the defendant’s evidence that he did meet up the defendant in Tung Chung the next day (11 April 2020) after the Whatsapp message, although he could not agree with the defendant’s evidence that the HK$10,000 was refunded because he did not have any recollection on whether it was refunded. I note here that the plaintiff carefully said that he did not have any recollection rather than making a denial. Having considered all these, I think the likelihood is, and so I find, that the defendant did pay the plaintiff HK$10,000. 54.So, I find that the plaintiff only paid a total sum of HK$240,000 in total for the 15% shares. C. Sale from the defendant or allotment from the Company? 55.In respect of whether the shares to be acquired by the plaintiff would be shares transferred from the defendant or allotted by the Company, it is common ground that neither party expressed or even discussed at the time of the 2% agreement or the 13% agreement anything about how the plaintiff would acquire the shares. 56.From the plaintiff’s perspective, what he was concerned with was that he would be assigned the shares. In fact, in his oral evidence, he alleged that it only dawned on him that the shares should be by way of transfer of shares from the defendant because of an alleged event in July 2020. This means, and so I find, that before that he simply did not think about how he was to acquire the shares. 57.As regards this alleged event in July 2020 itself, the plaintiff never mentioned it in his witness statement or pleadings. During cross-examination, the plaintiff mentioned for the first time that in July 2020, he and the defendant had a meeting where the defendant gave him an instrument of transfer and a bought and sold note to sign for the share transfer, but when he was signing them, the defendant alleged that he found some mistakes in the documents and thus took the documents and torn them apart, and the defendant further said that he would update the documents and ask the plaintiff later to sign them. In my view, if this meeting did take place, it would be unlikely that the plaintiff would have omitted referring to this meeting in his witness statement. The plaintiff’s explanation is that he mentioned this now because Ms Lydia Leung, counsel for the defendant, asked him how he came to conclude that the documents the defendant mentioned in the Whatsapp conversation were meant to mean an instrument of transfer and a bought and sold note. I do not accept this as a good explanation. This explanation even shows that it is all the way more important to mention the alleged meeting earlier – to show that even the defendant back in July 2020 also already understood the documents to be an instrument of transfer and bought and sold note. Therefore, I reject the plaintiff’s evidence in this regard. Thus, absent this alleged incident in July 2020, the plaintiff simply did not really think about how he was to acquire the shares at all. 58.In any event, even if this incident took place as the plaintiff lately alleged, it would just mean that before July 2020, he simply did not think about how he was to acquire the shares, irrespective of whether it was a transfer from the defendant or an allotment by the Company. Further, even if this incident took place, this also does not necessarily mean that there was an agreement that the shares should be by way of transfer from the defendant because (1) even according to the plaintiff, the instrument of transfer and bought and sold note were not executed; and (2) this at most formed the plaintiff’s expectation rather than an agreement. After all, the 2% agreement was entered into in March 2020, but not in July 2020, on both parties’ cases. 59.Similarly, from the defendant’s perspective, it would not make any practical significance to him be it a transfer of shares from him or an allotment by the Company because at all the material times, he was the sole shareholder and director of the Company. As he said during the oral evidence, which I accept, the defendant said that at that time, he was aware that shares could either be transferred from him or by allotment, and he simply did not think about that. He explained, which I accept as full of common sense, that he was the sole shareholder, and so when he said that shares would come from him, it made no difference to him that the shares were actually from him or allotted by the Company which he fully owned. 60.It is clear from the above evidence, objectively assessed, that both parties were actually ad idem on this – namely, they simply did not have any agreement on the way whereby the plaintiff was to acquire the shares. They only agreed the plaintiff would acquire the shares. Mr Yeung (for the plaintiff) contends that such a finding would actually be a finding based on the parties’ subjective intentions, which are irrelevant as a matter of contract law. I think there is a difference between an existence of the parties’ subjective intentions on a matter, and absence of the parties’ intentions, subjective or objective, on a matter. Here, my finding is based on the latter. In any event, I agree with the comments in Chitty on Contracts (35th ed) Vol 1 §4-005 that where the subjective intentions of the parties meet, they should be held to the subjective intentions rather than some objective intentions which neither party had actually thought of at the time of the contract. 61.In my view, the same applies to the additional 13%. Although, as quoted above, the defendant said he had bought Kiri’s entire shares, there is no dispute that at that time, the so-called Kiri’s shares were only entitlement to the shares, like the plaintiff’s. I see no reason why for this 13%, the plaintiff and the defendant would have thought about some other way for the plaintiff to acquire the shares. After all, what the parties cared about should be whether the plaintiff would be able to acquire the shares. How he would actually acquire the shares simply was not their concern. 62.I am fully aware that neither party pleads that the parties did not have any agreement on how the plaintiff would acquire the shares. However, I am entitled to find an “unpleaded agreement” so long as I do not move outside the evidence and such finding is not unfair to the parties and is to do justice between the parties according to law: see Mak Kan Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552 at §§104-106. In the present case, an issue from the pleadings concerned a contractual term about how the plaintiff was to acquire the shares. Further, according to the evidence transpired on this issue, none of the parties thought about that. Thus, I find myself perfectly entitled to find that the parties simply did not have any agreement on how the plaintiff would acquire the shares (the 2% and the subsequent 13%), be it by way of transfer of shares from the defendant or allotment form the Company. Having heard the evidence on this area, as mentioned above, the parties are actually ad idem, and I think to do justice, I should and so I do make this finding, that they did not have any agreement on how the shares would be distributed to the plaintiff. 63.As the term is clear from the ad idem evidence above, it is not necessary for me to look at the conduct subsequent. But even looking at the subsequent conduct, it is not clear that the parties had any agreement in this respect. 64.In this respect, the plaintiff relies heavily on the Whatsapp voice message on 25 May 2020 (that is, after the 2% was agreed but before the additional 13% was agreed) that:-
65.Only transfer of shares would need execution of documents. Allotment would not. The plaintiff thus submits that it is a strong evidence that even the defendant agreed for transfer of shares rather than allotment. However, somewhere else, as quoted in §11 above, the defendant would use the word “dilution”. Objectively read, “dilution” means that there would be allotment. The plaintiff explained that to his understanding “dilution” just means reduction of percentage of shares. I cannot accept this explanation especially the plaintiff had obtained a CFA level 1 Diploma. This concept of dilution is not a very complicated concept to elementary financial analysis, and although the plaintiff studied this a decade ago or so, I do not think that he would confuse “dilution” with “reduction” as he alleged. In coming to this conclusion, I also take into account the reliability of his evidence which has been undermined by his late account of the alleged July incident mentioned in §57 above and the alleged occasions mentioned in §84 below. 66.The Whatsapp conversation is in my view more consistent with there being no agreement on how the plaintiff was to acquire the shares – sometimes, the parties did think about allotment (as indicated by “dilution”) and sometimes, the parties did think about transfer of shares from the defendant (as indicated by execution of documents). 67.I should also mention that during the oral evidence, the plaintiff himself fairly accepted that by allotment, because the money would be put into the Company directly, the defendant would have less control over how to use the money. This may tend towards that the money was an investment direct into the Company and thus the shares were to be allotted. However, since it was the defendant but not the Company who was the contractual counterparty, no matter how the defendant would use the money (even assuming for argument sake, not for the Company’s purposes), the defendant would still have the obligation to cause the shares to be distributed to the plaintiff, and in my view, the plaintiff would (by the nature of the agreement being an investment agreement) have the right to ensure that the money paid would become capital into the Company rather than private money into the defendant’s pocket. In this regard, the defendant simply did not really distinguish his own private account and the bank account. For example, for the money paid by the plaintiff to him for the 13% shares, he would then transfer the money from his own account to the bank account of the Company, and issued a cheque in the name of the Company to pay to Kiri. While this may not be a good practice to confuse or conflate private account with Company account, I accept that for a one-man company, this is not unusual. Thus viewed, whether the investment money was paid to the defendant’s account or the Company’s account is of little significance to the defendant who wholly owned and controlled the Company. 68.So, the plaintiff’s acceptance that by allotment, the defendant would have less control over how to use the money does not point either way. D. Conclusion 69.Having considered the above, I find that:-
70.This finding is neither exactly the plaintiff’s pleaded contracts, nor exactly the defendant’s pleaded contracts. VI. WHETHER THE PARTIES UNDERSTOOD THAT THE DISTRIBUTION OF THE SHARES TO THE PLAINTIFF COULD ONLY TAKE PLACE AFTER THE GRANT OF THE TVP APPLICATION 71.The defendant’s case is that from the outset, he told the plaintiff that the distribution of the shares would be conditional upon the “determination of the TVP Application”: see §3(h) of the amended defence, a phrase used to replace original phrase “grant of funds under the TVP”. Mr Yeung (for the plaintiff), in my view, is perfectly entitled to take the pleading point that “determination” here could not be taken to mean, as the defendant now suggests, the final grant under the TVP. Determination is a rather neutral word, meaning that the grant could be made or the grant could be refused. At the time of expressing this condition at the time of the contract, on the defendant’s case, obviously the parties would not be able to know whether the final grant would be made, while not surprisingly, when they met and discussed the matter (if they did so), they may just use the words like “let’s wait for the grant first”. Viewed this way, while Mr Yeung’s pleading point is a point any diligent counsel would reasonably take, I do not think it would carry him too far in advancing his case. 72.To support his case that there was this condition for the distribution of the shares, the defendant called a few witnesses. 73.The defendant’s witnesses Priscilla Law and Brian Chan are still the shareholders of the Company and thus in my view, one may say that their interest is aligned with the defendant’s. Further, Priscilla Law had emotion and hard feelings towards the plaintiff. Hence, both witnesses may not be impartial. In fact, Priscilla Law’s evidence was like giving prepared speeches full of emotion rather than mere speaking to facts. However, the defendant’s witness Kiri Chui was different. As mentioned above, she quit the investment in about July and August 2020. So, she is no longer any stakeholder in the Company. Further, in her oral evidence, she said, and was not challenged, that she now has no relationship, business or otherwise, with the defendant at all. There is also no suggestion why she would depart from the truth. In gist, she is an independent witness. Therefore, I should accord more weight to her evidence. 74.The relevant parts of her evidence are that:-
75.Despite Mr Yeung (for the plaintiff)’s valiant effort to challenge her evidence in this aspect, including his challenge that there was no documentary evidence of what were really said at the UAT Meeting and no documentary evidence of what the defendant told her, I accept Kiri Chui’s evidence because:-
76.The defendant’s explanation, viewed against what he told Kiri Chui, made eminent sense, namely, pending the approval of the TVP Application, he would not want to risk any complication that might derail the approval process. In particular, the defendant explained that when the grant would be made, that is, when the money would actually be transferred to the Company and sit in the account, then he would have no worry about any possible negative effect of change of shareholding structure on the TVP Application. Consistent with this is the Whatsapp conversation between Red Lau of the agency engaged by the defendant to assist the TVP Application. In the conversation, Red Lau advised against changing the Company name before the grant of the TVP Application. Although Red Lau did not advise expressly in the Whatsapp conversation against change of shareholding structure before the grant of the TVP Application, as the defendant’s message on 25 May 2020 shows (quoted in §16 above), to him, change of shareholding structure would hinge upon the change of Company name first, in turn hinging upon the grant of the TVP Application. 77.Mr Yeung (for the plaintiff) relied on the defendant’s message on 25 May 2020 for some other purpose. He also pointed to some other similar messages from the defendant asking the investors to provide identification documents and address proof for preparing documents for the shares in May 2020 or even an earlier time. Mr Yeung submits that this could only mean that the investors laboured under an understanding that the shares would be distributed soon; otherwise, if they were waiting for the TVP Application and expecting it in November 2020, the preparation of the documents for the shares so early would be meaningless. 78.The defendant’s explanation was that he just prepared the documents in advance especially because the plaintiff had been asking for some documentation for him to consider. The fact not in dispute is that it was in May 2020 that the defendant had already been asking the plaintiff for information to prepare for the documents expected to be executed in November 2020, that is, 6 months earlier, and the plaintiff did not find it problematic either in the Whatsapp conversation. This timeline is consistent with the defendant’s explanation. Having considered this, I accept the defendant’s explanation. 79.The plaintiff also relied upon this message to say that there was an agreement or understanding that the shares would be distributed in November 2020. However, this message must be understood in the context of the UAT Meeting held in the same month, that is, May 2020, where the defendant said that he expected the grant would be made in November 2020. Thus, in this message, the focus may not be as much as on November 2020 than on the change of the Company name which could be carried out only after the grant of the TVP Application. In other words, November 2020 was an estimate only. The condition for the share distribution remained the grant of the TVP Application. 80.Further, Mr Yeung (for the plaintiff) contends that §52 of the TVP Guidelines provided that funding or any part of the funding may be terminated only after the approval of the TVP Application if there were material change of shareholding structure, and this is consistent with the defendant’s following Instagram conversation between the defendant and Isabella Tse on 11 June 2021 when the defendant was talking about the present action commenced by the plaintiff:-
81.One must read the message in context. The defendant explained why there was delay in share transfer. The reason he gave was “[TVP] delay”. It is indeed very odd for him then to say that he could not effect the transfer “after” the fund was granted to explain the delay. It seems to me that he actually meant to say “before”. 82.§52 of the TVP Guidelines has also to be read in context. If all the fund was granted, then how would the fund support be terminated? One must understand §52 in context. As described in §4 above, there were, briefly, five steps in the whole process. It is thus clear that before the final grant in step (5), the TVP funding support may be terminated, and before the initial grant in step (3), the TVP funding support may even be fully terminated. It is therefore consistent with the defendant’s evidence that he was advised not to change the shareholding structure before the grant, but of course, if the final grant has been made, then there would be nothing for ITC to terminate (or at least more difficult for ITC to terminate by re-claiming the full fund). 83.So, I do not think that Mr Yeung (for the Plaintiff)’s submissions would assist him. 84.Between May and November 2020, according to the plaintiff’s evidence, was the plaintiff’s demand for shares from the defendant on 14 October 2020 after the conversation on 13 October 2020 relating to the plaintiff’s intended sale to Isabella Tse mentioned in §26 above. I accept this evidence as inherently probable because the defendant’s response would make any reasonable person in the plaintiff’s shoes feel the urge to obtain the shares as soon as possible. But of course, no matter how urgent the plaintiff felt, he should know that he was still bound by the terms of the agreement. 85.November 2020 came, but neither change of name nor distribution of shares was realised. What happened after that? During cross-examination, the plaintiff, for the first time, mentioned that in late November or early December 2020, he went after the defendant for his shares.
86.In my view:-
87.I having rejected the evidence of these two occasions, the event following November 2020 therefore was a meeting between the plaintiff and the defendant on 6 January 2021. 88.In my view, it is inherently improbable that the plaintiff would not have any follow up or chased the defendant for the shares from May 2020 (when he was told to expect change of the Company name in November 2020) unless he had an understanding that the shares would be available only after the grant of the TVP Application. 89.One would have thought that if the grant of the TVP was a condition, then the defendant would promptly inform all the investors after the grant in February 2021 that the grant had finally come. In particular, the defendant’s oral evidence is that he did not do so, while the defendant’s witnesses seem to say that he did notify them. The defendant explained that he did not notify the investors promptly because he was waiting for the finalisation of the auditing, and that the investors had waited for a long time anyway. I do not find this explanation satisfactory. I bear in mind that in March 2021, the business was in effect put into hibernation and thus it might be that the defendant thought that the investors in such circumstances would not be keen to get the shares promptly, except for the plaintiff who had met the defendant on 6 January 2021. In this respect, I cannot make any finding given the unsatisfactory state of the evidence. 90.But what I can see from the evidence is that indeed, before any legal demand letter issued to the defendant, as mentioned in §33 above, the defendant had already on 9 March 2021 instructed the Company secretary to do the preparation for the share distribution at least to the plaintiff. This is consistent with the defendant’s all-along saying that he had to wait for the grant of the TVP Application. 91.Having considered all the above (including the fact that the defendant told Kiri Chui that the shares could only be distributed after the grant of the TVP Application and the fact that the plaintiff did not raise the objection during the UAT Meeting to the defendant’s telling them about the distribution of shares upon grant of the TVP Application, as well as the unsatisfactory evidence that the defendant apparently failed to notify the investors of the grant under the TVP), I find that the defendant also told all the incoming investors (including the plaintiff) at the outset of the investment that the shares could only be distributed after the grant of the TVP Application. VII. WHETHER THE DEFENDANT HAD REPUDIATED THE PLAINTIFF’S PURPORTED ORAL AGREEMENTS BY 6 JANUARY 2021 OR AT ALL 92.This question of whether the defendant had repudiated the agreement consists of the following sub-questions:-
A. What was the reasonable time? 93.Where a contract does not contain any term as to the time of performance, as a matter of business efficacy, a term that the obligation shall be performed within a reasonable time is implied. What time is reasonable depends on the circumstances which both parties were or might objectively be taken to be aware of “at the time of making the contract” (emphasis added): see Kensland Realty Ltd v Whales View Investment Ltd & Anor (2001) 4 HKCFAR 381 at §§69-70: see also Stannard, Delay in the Performance of Contractual Obligations (2nd ed) §§1.11-1.12 & 1.17-1.26, and also depends on the assessment of the subsequent circumstances with hindsight: see Lewison on the Interpretation of Contracts (8th ed) §6.158. 94.The grant of the TVP Application was made in late February 2020. The shares were actually allotted in May 2021. The defendant’s evidence that allotment of shares could be carried out only after auditing is not challenged, and I accept the same. On my finding that the shares were to be acquired only after the grant of the TVP application, I find that the distribution of the shares in May 2021 fell within a reasonable time. B. Was the implied term of reasonable time a condition? 95.Mr Yeung (for the plaintiff) fairly accepts that on the pleading, the implied term of reasonable time was not a condition. Thus, the answer to this question is in the negative. C. Was the defendant’s failure to distribute the shares within the reasonable time as alleged by the plaintiff evinced an intention of the defendant not to be bound by the terms of the Agreements? 96.Given my finding above that the distribution of the shares fell within a reasonable time, the answer to this question of whether there was any evinced intention not to be bound by the agreement is in the negative. 97.Even if I were wrong in my finding that there was a condition that the shares could only be distributed after the grant of the TVP Applicant, and even if I assumed that the distribution of shares in May 2021 was out of any reasonable time, I would still find that the defendant evinced no intention not to be bound by the agreement. My explanation is as follows. 98.First, the plaintiff (rightly) maintains its position pleaded at §5 of the amended statement of claim that the defendant “repudiated the Agreements and wrongfully evinced an intention not to be bound by the terms of the Agreements”, with reference only to the defendant’s delay in distributing the shares. The question before me is whether the delay was sufficient to evince such an intention, and this is a question of fact: see Stannard, §§6.26-6.27. 99.As mentioned above, November 2020 came, but neither change of name nor distribution of shares was realised. After November 2020, as I have found above, the plaintiff did not make any demand for the shares from November 2020 to 6 January 2021. 100.It is not in dispute that a meeting between the plaintiff and the defendant took place on 6 January 2021. What is in dispute is the contents of the meeting:-
101.Thus, the common ground is that during that meeting, the defendant did say that he had no obligation to buy back the plaintiff’s shares and did ask the plaintiff to look for potential buyers of the plaintiff’s shares. As to whether the plaintiff did say that he took the defendant as having no intention to give him the shares on 6 January 2021, I have the following considerations:-
102.Having considered the above, I find that by 6 January 2021, there having been no demand from the plaintiff for the shares, the defendant had not evinced any intention not to be bound by the agreement, and the plaintiff did not say anything to that effect on 6 January 2021. 103.The plaintiff’s alternative case on acceptance of repudiation is that the said solicitors’ letter of 27 April 2021 was the acceptance of the repudiation. Thus, I would have to find whether, between January 2021 and April 2021, the defendant’s delay constituted any evinced intention not to be bound. On the evidence before me, the contact between the plaintiff and the defendant before this letter was the 6 January 2021 meeting. While the plaintiff demanded an exit from the investment, the defendant asked him to look for potential purchasers instead. The plaintiff did not there and then demand for distribution of shares so that he could talk to potential investors. In fact, this would be unlikely, given that he had already purchased Kiri Chui’s 13% shares which had not been distributed either and thus he would not have this concern in relation to potential purchasers. Therefore, while the meeting would definitely result in some urgency felt by the defendant to distribute the shares to the plaintiff as soon as possible, objectively viewed, it is not a situation where if the shares were not distributed before 27 April 2021, the defendant could be regarded as evincing an intention not to be bound. 104.For the sake of completeness, I shall deal with Mr Yeung (for the plaintiff)’s argument that the defendant’s refusal to allow the plaintiff to sell his 1-2% shares to Isabella Tse (as mentioned in §26 above) provided the context against which I would be able to find a motive for the delay, namely, the defendant deliberately delayed the distribution of the shares so that the plaintiff would not be able to sell to Isabella Tse. I do not accept this argument. The common ground is that after the conversation on 13 October 2020 as mentioned in §26 above, the plaintiff decided not to sell the shares to Isabella Tse, and this was also the defendant’s understanding. Therefore, knowing that the plaintiff would not sell the shares to Isabella Tse, and absent any suggestion to the defendant that the plaintiff would still sell the shares to Isabella Tse behind his back, there would be no reason why the defendant would still have any motive to prevent the plaintiff from acquiring the shares, a fortiori by way of delay. VIII. WHETHER THE PLAINTIFF ACCEPTED THE REPUDIATION ON 6 JANUARY 2021, 27 APRIL 2021 OR AT ALL 105.In order to terminate a contract based on a repudiatory breach, the innocent party has to accept the repudiation by clear and unequivocal conduct: Chitty on Contracts (35th ed) §28-043. 106.On my finding in relation to the meeting on 6 January 2021 (in §§100 – 102 above), I find that the plaintiff did not say anything to the effect that the defendant had no intention to give him the shares. Thus, there was no acceptance of repudiation, if any. 107.However, in my view, the letter of 27 April 2021 would be a clear communication of an acceptance of the repudiation, if any. IX. WHETHER THE PLAINTIFF IS ENTITLED TO LOSS AND DAMAGES, OR A REFUND, IN THE SUM OF HK$250,000 108.On my findings above, the plaintiff is not entitled to HK$250,000 or HK$240,000 based on breach of contract. 109.The plaintiff is also not entitled to restitution. This is because shares have indeed been allotted in performance of the contract between the plaintiff and the defendant, and it is the plaintiff’s fault in refusing to accept the shares, absent any breaches of contract on the defendant’s part. The plaintiff cannot rely upon his own fault to make good his claim. X. CONCLUSION 110.In the premises, I shall dismiss the plaintiff’s claim. I make a costs order nisi that the plaintiff do pay the defendant costs of this action (including all costs reserved), to be taxed if not agreed, with certificate for counsel.
Mr Cedric Yeung, instructed by GT Lawyers, for the plaintiff Ms Lydia Leung, instructed by Chak & Associates LLP, for the defendant | ||||||||||||||||||||