Friends Food (Hong Kong) Company Ltd v. Friends Frozen Food Company Ltd and Another
Read the full judgment text of DCCJ 1670/2022 on BabelCite. This District Court judgment was delivered on 17 April 2026.
1. This is a dispute arising from a written agreement dated 31 August 2021 (“the Contract”) between Friends Food (Hong Kong) Company Limited (“F Food HK”), as purchaser on the one part, and Yeung Cho Yi (楊祖兒) (“Yeung”) and Friends Frozen Food Company Limited (“F Frozen Food”) on the other, as seller, for the sale or transfer of the frozen food wholesale business operated under F Frozen Food (“the Business”).
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DCCJ 1670/2022 [2026] HKDC 659 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 1670 OF 2022 --------------------------------------- BETWEEN
(By Original Action) AND BETWEEN
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------------------------ JUDGMENT ------------------------ A. INTRODUCTION 1.This is a dispute arising from a written agreement dated 31 August 2021 (“the Contract”) between Friends Food (Hong Kong) Company Limited (“F Food HK”), as purchaser on the one part, and Yeung Cho Yi (楊祖兒) (“Yeung”) and Friends Frozen Food Company Limited (“F Frozen Food”) on the other, as seller, for the sale or transfer of the frozen food wholesale business operated under F Frozen Food (“the Business”). 2.In October 2020, Yeung became the sole shareholder and director of F Frozen Food. In May 2021, Yeung listed the Business for sale with Ko Pak Business, a business brokerage. Mr Sam Shing (盛爵深) (“Shing”) was, at the time, the agent involved in the sale of the Business. 3.In July 2021, Mr Mak Wai Cheung (麥偉章) (“Mak”) and his partner, Mr Cheung Hoo Kiu Kenny (張皓喬) (“Cheung”), noticed the listing and approached Shing. They subsequently met Yeung at F Frozen Food’s workshop. After discussions, the parties (ie, F Frozen Food, Yeung, and Cheung) entered into a provisional agreement for the sale of the Business on 20 July 2021 (“Provisional Agreement”). 4.On 3 August 2021, Mak and Cheung then incorporated F Food HK for the purpose of taking over the Business. A formal contract (ie, the Contract) was then executed on 31 August 2021. 5.On 1 September 2021, Mak and F Food HK took over the Business and continued to operate the frozen food wholesale business at the then existing workshops of F Frozen Food. 6.Pursuant to the terms of the Contract, Mak paid Yeung a total sum of $1,050,000 as a stage payment. On 2 October 2021, Mak paid Yeung a further $200,000. Although there is a dispute as to the nature of this further payment, it is common ground that a total of $1,250,000 was paid by Mak to Yeung in connection with the sale/transfer of the Business. 7.In this action, F Food HK (as the plaintiff by original action) claims:
8.On the other hand, the Defendants counterclaim against both Mak and F Food HK for the outstanding contract sum of $250,000. 9.This case came on trial on 15 September 2025, with 6 days reserved. 10.At the hearing, F Food HK and Mak were represented by Mr Ernest Koo (“Mr Koo”) and Mr Rex Yam of counsel, instructed by Messrs Simon C W Yung and Co., whereas the Defendants were represented by Ms Claris Kwong (“Ms Kwong”) of counsel under the instruction of Messrs Tong & Tsoi. B. THE CASE OF F FOOD HK AND MAK 11.F Food HK’s claims are founded on (1) fraudulent misrepresentation, (2) breach of contract, and (3) tort of misappropriation and conversion (of F Food HK’s frozen foods and money). B1. Fraudulent misrepresentation 12.For misrepresentation, F Food HK asserts that:
B2. Breach of contract 13.As to its breach of contract claim, F Food HK asserts that:
14.For the said misrepresentation and breach of contract, other than seeking to rescind the Contract, F Food HK also seeks (a) a declaration that the Defendants were in breach of the Contract, and (b) damages against the Defendants, which include the purchase price paid in the sum of $1,250,000, the purchase price of stock-in-trade paid in the sum of $150,000, exemplary damages, and loss of business and profits. B3. Misappropriation of goods and money 15.It is also F Food HK’s case that, before 17 October 2021, Yeung and/or F Frozen Food have on various occasions misappropriated the stocks and/or inventories of F Food HK. In this regard, F Food HK asserts that on various evenings shortly before 17 October 2021, Yeung secretly entered Workshop 1717 and Workshop 2801 and stole some of F Food HK’s frozen food stored therein. 16.Further, the Defendants dishonestly and/or without prior authority, knowledge, consent or approval of F Food HK misappropriated payments made by or received from customers in settlement for frozen foods supplied by F Food HK after 1 September 2021, in a total sum no less than $46,465. 17.By reason of the said misappropriation, on pleadings, F Food HK claims the following further damages: (a) value of the goods stolen by the Defendants, (b) payments from customers misappropriated by the Defendants, and (c) loss of business misappropriated. It is to be noted that at trial, F Food HK no longer pursued its claim for loss of business. 18.As F Food HK does not know the type(s) and exact quantities of the frozen foods stolen by the Defendants, or the full details of the payments from customers misappropriated by the Defendants, it is also seeking an order for an account and all necessary and proper inquiries and directions for the taking of such account. However, in F Food HK’s closing submissions, this claim is also abandoned. C. THE DEFENDANTS’ DEFENCE AND COUNTERCLAIM 19.The Defendants’ pleaded case can be briefly summarized as follows:
D. ISSUES BETWEEN THE PARTIES 20.There is an Agreed Statement of Issues in dispute filed by the parties. The issues can be boiled down to the following questions:
21.The parties’ respective contractual obligations under the Contract are matters of contract construction. The answer to the above questions turns on the determination of the following core factual issues:
E. EVIDENCE ADDUCED BY THE PARITES 22.In this action, the following witness statements were served by the parties:
23.At trial, Mak and Ms Wong gave evidence for F Food HK, whereas Yeung and Shing testified for the Defendants. Having adopted their respective witness statements as their evidence in chief, they were subject to extensive cross-examination by counsel for the opposite party. 24.The legal principles to be applied in assessing the credibility of a factual witness are well established. These principles were summarized by DHCJ Eugene Fung SC in Hui Cheung Fai v Daiwa Development Limited (unrep, HCA 1734/2009, 8/4/2014) at §§77-81:
E1. Evidence of Mak and Ms Wong 25.Mak’s evidence covered the following:
26.As to Ms Wong, she gave evidence on how she was requested by Yeung to set up Goodsview for Yeung, the reason for putting her, instead of Yeung, as the owner of Goodsview, details of the setting up of Goodsview’s frozen foods storage and processing factory in Yuen Long, and the role played by Yeung in the process. She also testified that, after Goodsview was set up, Yeung approached F Food HK’s employees and encouraged them to leave F Food HK and join Goodsview, and most of them did accordingly. Furthermore, Yeung told her that, as Mak was not personally involved in the daily operations of the Business after the handover, he had stolen more than $200,000 worth of frozen food from F Food HK. 27.The relevant parts of their evidence are set out in the “Discussion” section below. 28.All in all, I find both Mak and Ms Wong to be honest and reliable witnesses. They gave direct, and straightforward answers when questioned by the court and under cross-examination. They were helpful and generally did their best to assist the court. Their evidence was logical and without internal inconsistency. More importantly, their evidence (both given orally at trial and in their statements) was supported by contemporaneous documents, photo records and voice messages between Yeung and Ms Wong, and between Mak and Yeung. They remained unshaken after cross-examination. 29.I was particularly impressed by Ms Wong. She had an affair with Yeung between February 2020 and the end of October 2021, and during that period, she became pregnant with Yeung’s child. Doubting Yeung’s reliability, she decided not to continue with the pregnancy. In about July 2021, Yeung exploited their relationship by asking Ms Wong to establish a new company (which subsequently took the name of Goodsview) on his behalf and assist him in running a frozen food wholesale business that competed with F Food HK. At the time, Ms Wong still believed Yeung would eventually start a family with her, so she complied. She later discovered this was another deception and ended the relationship in October 2021. She came forward and gave evidence for F Food HK regarding details of Yeung’s request to incorporate Goodsview, the setting up of a processing factory/storage for frozen food in Yuen Long, and how Yeung approached his past employees at F Food HK, inviting them to work for Goodsview instead, etc. 30.Ms Wong’s testimony was direct and forthcoming. Her answers under cross-examination were spontaneous, clear, and firm. She was not shaken in cross-examination. Even when questioned by Ms Kwong (counsel for the Defendants) about the intimate nature of her relationship with Yeung, Ms Wong maintained her composure and continued to give direct and firm answers. 31.Despite the criticism made by Ms Kwong in her closing against Mak’s and Ms Wong’s evidence, which I have carefully considered, there is no doubt in my mind that both Mak and Ms Wong told the truth in court, and I have no hesitation in accepting their evidence. E2. Evidence of Yeung 32.In contrast, I am not impressed by Yeung as a witness. It is Ms Wong’s evidence that she and Yeung had an affair at some point, and because of that, she assisted Yeung to set up and operate Goodsview. However, at trial, in order to discredit Ms Wong, Yeung turned around and said, in 2014, Ms Wong began working at F Frozen Food. Due to Ms Wong’s good performance, she earned a higher commission. However, she misunderstood his intentions and, through various means, attempted to initiate a romantic relationship with him. Ms Wong’s feelings were unreciprocated; he was not interested and maintained a strictly professional relationship with her. There was never any romantic involvement between them. 33.Ms Wong’s answer to Yeung’s assertion regarding their relationship was as follows:
34.Yeung’s assertion that his relationship with Ms Wong was purely professional is plainly untrue; a voice message between Yeung and Wong in November 2020 produced by Ms Wong actually corroborated Ms Wong’s evidence, showing that they indeed had an affair and Ms Wong got pregnant, Ms Wong told Yeung that she did not want to continue the pregnancy, and Yeung tried to convince Ms Wong to keep their baby by saying that the baby was innocent “無辜”. 35.Further, there were aspects of Yeung’s evidence that are inherently incredible and/or inconsonant with contemporaneous records (including screenshots of text messages and transcripts of voice messages on WhatsApp). The voice message mentioned above is one of those. 36.As the said records on WhatsApp are damaging to the Defendants’ case, Yeung disputed their authenticity at trial. Since the messages in question were either between Yeung himself and Mak or between Yeung and Ms Wong, I would expect Yeung to challenge their authenticity only if he genuinely believed they were fake. 37.However, quite unreasonably, Yeung refused to drop the challenge even after F Food HK had shown to the court screen recording video clips prepared by Ms Wong, containing all the WhatsApp conversations, including, inter alia, the voice messages shown on the screenshots. 38.It was not until the 4th day of the trial, after Ms Wong managed to download the original WhatsApp records from her iCloud account, that the Defendants abandoned their challenge to the authenticity of those contemporaneous records. Indeed, Yeung subsequently admitted, in cross-examination, that the records of the messages between Ms Wong and him, including the voice messages and their transcriptions[1], were true and accurate. 39.These contemporaneous WhatsApp records, which Yeung ultimately admitted were true records, clearly show:
40.It is therefore plain from the said records that, before the parties entered into the Contract, Yeung had already directed Ms Wong to set up a new company (ie, Goodsview) for him and to operate a similar frozen food wholesale business in Hong Kong.[2] He was the proprietor of Goodsview and masterminded the whole process. The evidence is overwhelming; I really cannot see any sensible reason for Yeung to continue denying it. 41.Under cross-examination, Yeung argued that he was just giving Ms Wong his opinion on the name to be adopted for Ms Wong’s own frozen food wholesale business; the new company was not set up for him. As to the setting up of the food processing factory/ storage in Yuen Long, Yeung said Ms Wong only assisted him in setting up a storage for his own “燒味” (BBQ food) business; it had nothing to do with the frozen food wholesale business, as alleged by F Food HK. 42.However, not only do these excuses not appear in the Defendants’ pleadings, they were also not mentioned by Yeung in his two rounds of statements, despite that Yeung’s supplemental statement was specifically served in response to Ms Wong’s statement, in which she clearly stated that she was requested by Yeung to set up a frozen food storage and processing workshop for him in Yuen Long. Besides, as Yeung also accused Ms Wong of blackmailing and threatening him, it is against human nature that he would still have requested Ms Wong’s assistance with his “燒味” (BBQ food) business. These on-the-spot fabrications do not sit well with Yeung’s other assertions. They are therefore rejected. 43.Another example illustrating Yeung's lack of complete honesty in giving evidence is his attempt to criticize Mak for not fully disclosing to the court that the Business had been resold to someone else in 2022. In Yeung’s supplemental statement, he gave the false impression that he only became aware of this much later—specifically, through his solicitors in late November or early December 2023. This was how Yeung put it in his supplemental statement:
44.This is yet another series of falsehoods. Notably, Yeung did not specify in his statement where or how he obtained a copy of the contract between 葉秀萍 and Nam Man Ngai. In his statement, Yeung claimed that he did not know 葉秀萍 or Nam Man Ngai, nor was he aware of the resale of the Business prior to the service of the Amended Reply in July 2023. During cross-examination, apparently to obscure his relationship with Nam Man Ngai, he stated that he obtained the contract from 葉秀萍. However, it remains unclear how Yeung first established contact with Ms Yip if he did not know any of the contracting parties. 45.In response to Yeung’s assertions above, Mak produced records from the Companies Registry showing that Yeung and Nam Man Ngai have been shareholders of a company called “IKEE GLOBAL FOODS COMPANY LIMITED” (“IKEE”) since 21 October 2022. Therefore, Yeung must have known Nam Man Ngai since at least that date, probably much earlier. It is also noteworthy that Nam Man Ngai entered into a contract with 葉秀萍 on 23 September 2022, with the handover date for the Business set for 10 November 2022, and during this period, Yeung and Nam Man Ngai became partners in IKEE. Given these circumstances, it is difficult to believe that Yeung was unaware of the resale of the Business until more than a year later. It is likely that Yeung obtained the contract directly from Nam Man Ngai; he may, in fact, be involved in and have a vested interest in the transaction between Ms Yip and Nam Man Ngai. 46.Apart from that, under cross-examination, Yeung also made verbal assertions in the witness box that contradict his own statements. 47.Yeung clearly did not tell the truth in court. I agree with Mr Koo’s submissions that Yeung was prepared to do whatever it takes, or to make whatever false statements necessary to deny F Food HK’s case or to rebut its evidence. His evidence is unreliable. Therefore, to the extent that Yeung’s evidence is inconsistent with that of Mak or Ms Wong, I prefer that of Mak and Ms Wong. E3. Evidence of Shing 48.As to Shing, he was supposed to be an independent witness without self-interest in the outcome of this action. However, it was apparent that he was prepared to give evidence in line with the Defendants’ case and Yeung’s evidence. A great number of paragraphs in his statement are substantially similar to the corresponding parts of Yeung’s statement. 49.In the witness box, Shing said he drafted his own witness statement. And he only passed it to the Defendants’ legal representatives via WhatsApp for conversion into the proper legal format and correction of only grammatical, typographical or terminology errors. 50.However, I note that a great number of paragraphs in his statement are substantially similar (on occasions identical) to the corresponding parts of Yeung’s statement. In view of the striking similarities between the contents of Yeung’s statements and Shing’s statement, it was probably not the case. 51.When Shing was taken by Mr Koo to paragraph 13 of his statement and paragraph 23 of Yeung’s statement and asked why the paragraph in question that he allegedly drafted personally would be almost identical to that of Yeung, Shing made no attempt to explain, but merely said he had “no comment”. The lack of an attempt to explain is telling. 52.In Melvin Waxman and Another v Li Fei Yu and Another [2022] HKCFI 3579, Hon K Yeung J, in dealing with a similar situation, stated at §§57-59 that: -
53.I further note that when Shing was cross-examined by Mr Koo on paragraphs 12(7) and 21 of his statement, in which he stated that Cheung signed the Provisional Agreement and the Contract on behalf of Mak, he admitted that it was incorrect. Regrettably, Shing did not even try to explain why he adopted his statement in chief, even though he knew that at least some of the facts it contained were untrue. This casts further doubt on the veracity of his statement. 54.Given that there is no suggestion that Shing discussed the matter with Yeung prior to preparing their respective witness statements, and further considering Shing’s inability to provide any explanation or justification for the similarities identified during cross-examination, I am not satisfied that Shing’s statement reflects his personal recollection of the facts stated therein. 55.Further, Shing’s statement contains Shing’s interpretation of the Contract, which is not helpful to the court. 56.Accordingly, I attach little weight to Shing’s evidence that was adduced by adopting his statement. 57.However, unlike Yeung, I find that Shing had no intention of lying in court; he tried hard to recall what happened at the time and did his best to assist the court. When he was put to the relevant parts of his statement, which were disputed by F Food HK, Shing readily admitted the inaccuracies and supplemented or corrected them accordingly. For instance, Shing clarified paragraph 16 of his statement, stating that on either 16 July 2021 or 19 July 2021, Mak had made clear to Yeung that a new company with a name similar to F Frozen Food would be set up to take over the Business. F. DISCUSSION F1. Mak acted on behalf of F Food HK and was not a party to the Contract 58.When there is an issue as to the identity of a contracting party, it is well settled that extrinsic evidence is admissible for its determination. It was held in Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470 by Jackson LJ at §57 that:
59.It is Mak’s evidence that since 16 July 2021, when the parties met to discuss the purchase of the Business, Yeung was aware that Mak and Cheung would set up a new company and use it to purchase and take over the Business. 60.As mentioned above, Shing also clarified at trial that the same was made clear to Yeung either on 16 July or 19 July 2021. 61.As to Yeung, in answer to the court, he confirmed that on 20 July 2021, ie when the parties signed the Provisional Agreement, Mak told him that a new company with a name similar to F Frozen Food would be set up to take over and run the Business. F Food HK was subsequently incorporated on 3 August 2021 for that purpose. Yeung further said that, when the Contract was entered into on 31 August 2021, he learned that the new company to take over the Business was F Food HK. 62.In the premises, I am satisfied that, at the time of the Provisional Agreement, the common understanding of Cheung, Mak and Yeung was that the Business would be taken over by a new company to be specifically set up by Mak and Yeung for such purpose; and at the latest by 31 August 2021, the common consensus between the said parties was that the new company to take over the Business was F Food HK, and Cheung signed the Provisional Agreement and the Contract for and on behalf of F Food HK. 63.I therefore hold that although Mak was one of the founding members and directors of F Food HK, he was not a party to the Contract. The real contracting parties were F Food HK, F Frozen Food and Yeung. F2. Fraudulent Misrepresentation 64.In mid 2021, Yeung approached Shing regarding the sale of the Business. Subsequently, under the instruction of Yeung (acting on behalf of F Frozen Food), Shing placed an advertisement on his company’s website and various social media platforms for the sale of the Business (“the Advertisement”). Representations 65.In the Advertisement, F Frozen Food/Yeung presented to the public, inter alia, that:
66.In early July, Mak and Cheung noticed the Advertisement and noted that the business for sale includes a food processing license, cool room(s), and all the profit-generating tools and equipment, etc, with a monthly profit of $200,000. Further, the owner can train the buyer in the necessary trade skills required to run the Business. 67.On 16 July 2021, Shing arranged for Mak and Cheung to meet Yeung at Workshop 2801 for their first meeting, during which Yeung (also acting for F Frozen Food) made to Mak and Cheung the following representations (ie the Representation):
68.On 19 July 2021, Mak and Cheung met Yeung for the second time. On that occasion, Yeung reiterated that he and F Frozen Food would fulfil their commitments, including assisting the buyer in taking over the frozen food wholesale business, retaining the existing staff, and that he would not operate or participate in any other similar businesses. The parties therefore reached an oral agreement to sell the Business to Mak’s and Cheung’s new company for $1.5 million. 69.With Shing’s help, the parties signed the Provisional Agreement on 20 July 2021. The terms of the Provisional Agreement were prepared by Shing based on the parties’ agreement on 19 July 2021. It contains, inter alia, the transfer of all tools and equipment and the Defendants’ commitments including (a) within one month of the transaction, the Defendants would assist the new company in operating its frozen food wholesale business, (b) helping the new company retain F Frozen Food’s original employees, and (c) the Defendants agree not to work in the frozen meat wholesale industry for 84 months after the transfer of the Business. 70.The written terms of the Provisional Agreement, which largely align with the Representations, suggest that the Defendants made these Representations before the parties entered into the contract. 71.Given that the Defendants stated the Representations in the Advertisement and reiterated the same commitments to Mak and Cheung at the meetings on 16 July 2021 and 19 July 2021, it is self-evident that the Defendants made these Representations with the intention that Mak and Cheung would rely on them. 72.After the Provisional Agreement was executed, on 3 August 2021, Mak and Cheung established F Food HK in preparation for the future takeover of the Business. The company name, “Friends Food (Hong Kong) Company Limited (老友記食品(香港)有限公司)” (ie F Food HK), was deliberately chosen by Mak and Cheung to resemble that of the vendor company, “Friends Frozen Food Company Limited (老友記冷凍食品有限公司)” (ie F Frozen Food), with the aim of ensuring a smooth transition of the Business, particularly regarding its customer base. 73.The formal sale and purchase agreement (ie, the Contract) was executed on 31 August 2021. 74.As explained above, although Cheung was still named in the Contract as the buyer, the real buyer that ought to have been stated therein should be the new company, F Food HK. 75.The Contract also contains express terms in line with the commitments stated in the Representations. 76.In view of the nature of the transaction, in particular the kind of business being transferred thereunder, and the circumstances in which Mak and Cheung entered into the Provisional Agreement and, subsequently, the Contract, I am also satisfied that Mak and Cheung have at the material times relied on the Representations, and they would not have agreed to purchase the Business but for the Representations. Falsity of the Representations 77.The following is Ms Wong’s evidence, which I accept. 78.In around the second half of July 2021, Yeung asked Ms Wong, who at the time was Yeung’s girlfriend, to help him set up a new company in Ms Wong’s own name to run a frozen food wholesale business, similar to what F Frozen Food was doing. Yeung further told Ms Wong that he was selling F Frozen Food’s business, and he promised the buyer he wouldn’t operate a frozen food wholesale business or anything similar. Therefore, he couldn't use his own name; he needed Ms Wong’s help to set up a new company under her own name to continue operating the business. 79.Ms Wong asked Yeung why he didn’t ask his father or his wife, Lam Oi Lai, for help. Yeung replied that his father owned a public housing unit and couldn’t own the company, and that his wife couldn’t run the company on his behalf due to tax concerns. 80.All the work involved in setting up Goodsview was carried out by Ms Wong personally as per Yeung's instructions.
81.After establishing Goodsview, Yeung began preparations to set up a frozen food processing workshop and storage for the business of Goodsview. He found an empty lot in Yuen Long (part of DD 119 Lot 484) for the establishment of the said storage and food processing workshop. Ms Wong therefore assisted him in establishing the workshop in accordance with Yeung’s instructions and requirements. 82.Ms Wong emphasized that Yeung made all the decisions regarding the establishment, opening, and preparation of the storage and food processing workshop. She only carried out the work according to his instructions and requirements, contacting relevant personnel and handling related matters, including handling the required internal fitting-out work, purchasing refrigerated cabinets (cool rooms) and office containers, etc. Yeung covered all the expenses. 83.The contemporaneous records of the exchange between Yeung and Ms Wong via WhatsApp (including photos, text and voice messages) concerning the setting up of Goodsview and the workshop in Yuen Long, disclosed by Ms Wong, support Ms Wong’s evidence. 84.Regarding the operation of the new frozen food wholesale business under Goodsview, Ms Wong further testified that:
85.It is noteworthy that Mak also testified that, in addition to operating Goodsview, Yeung also ran a frozen food wholesale business through another company, Goodwill Frozen Food Company (好景凍肉) (“Goodwill”). Mak claimed that Yeung similarly misappropriated and transferred business and customers that should have belonged to F Food HK. Both Goodsview and Goodwill share the same registered address. The registered owner of Goodwill is Yeung Ka Chai Michael (楊家齊), the same person, according to Ms Wong, whom Yeung entrusted to handle some of F Frozen Food’s former customers. 86.Whilst it is well established that a claimant must rely on a misstatement of fact, rather than mere promises, to establish a claim for misrepresentation, a promise may nonetheless constitute a representation as to the promisor’s present intention regarding future conduct. Accordingly, if it can be shown that the promisor, at the time of making the promise, in fact had no such intention, that constitutes an actionable misrepresentation. See Glory Gold Limited v Star Play Development Limited [2008] 2 HKLRD 416 (CA) at §20. 87.There is no clear evidence as to when the Defendants formed the intention not to properly and fully transfer the Business to F Food HK after the execution of the Contract. 88.However, the evidence clearly shows that before the Contract was entered into, while the Defendants were still representing to Mak and Cheung that, inter alia, they would not engage in any similar business following the transfer of the Business, Yeung had already formed the intention, and started taking steps, in setting up a new company, Goodsview, to operate a similar frozen food wholesale business in competition with the future buyer of the Business. Thus, at the time the Representations were made, the Defendants had no intention of honouring the promise and knew they were false. 89.In law, a representation made to the promoters of the company, that is yet to be incorporated, is taken as an inducement to the company, with an intention that it would be acted upon by the company. See Peconic Industrial Development Ltd v Lau Kwok Fai and Others (unrep, HCA 3083/2002, 01/06/2006) at §156:
90.Further, the Representations continued until the Contract was entered into between F Food HK, as the purchaser (with Cheung as its agent), and Yeung and F Frozen Food, as the vendor. See: Peconic at §157:
91.Although the evidence only shows that the Defendants had no intention to honour part of the Representations at the time when they were made, namely, not to engage in any similar business as a supplier or wholesaler of frozen food after the transfer of the Business, it is sufficient to mount an action for misrepresentation, as the misrepresentation does not have to be the sole cause of the representee’s decision to enter into the contract. In Cartwright, Misrepresentation, Mistake and Non-Disclosure (7th Ed) at §3-57, the author states:
92.The subsequent inclusion of a similar non-competition provision in the Provisional Agreement and the Contract confirms that, at the material times, both Cheung and Mak, as promoters of Goodsview, relied on and were induced by the relevant part of the Representations, which is now proved to be false. 93.In the premises, I am satisfied and find that (a) the Defendants had, prior to the Contract, made a false representation to Mak and Cheung (as promotors of F Food HK), which the Defendants knew the same was untrue, and had no intention to honour, and (b) the Defendants intended that the said false misrepresentation to be relied upon by Mak and Cheung, (c) Mak and Cheung did rely on it and were thereby induced to enter into the Contract, and (d) before the Contract was entered into, the Defendants had planned to set up Goodsview to be engaged in a similar frozen food wholesale business and subsequently started operating the said business in around late October 2021. 94.I, therefore, hold that the Defendants are liable for fraudulent misrepresentation. F3. Breach of contract 95.The Contract contained the following material terms:
Clause 2.7 is enforceable 96.Clause 2.7 is a restrictive covenant, Ms Kwong submitted that it is for the party who relies on a restrictive covenant to prove the same is enforceable, a bare assertion that the clause is enforceable is not enough, see Natuzzi SPA v De Coro Ltd [2006] HKCFI 631, HCA 4166/2003, 16 June 2006, per Lam J (as he then was) at §63. 97.She further submitted that F Food HK failed to establish that clause 2.7 is enforceable. There is no evidence or justification for a restrictive 84-month period that not only extends to operating a frozen food business but also to assisting others in doing so. The wide scope of the restriction, she submits, is not justified. 98.In response, Mr Koo submitted that whilst the basic rule is that covenants in restraint of trade are unenforceable unless they can be shown to be reasonable in the interests of the parties and in the public interest, a distinction has to be drawn between a covenant between master and servant, and a covenant against competition, which is what clause 2.7 is. Mr Koo relies on Degreeasia Limited v Paules Lee Siu Yuk and ors, HCA 1686/2006, 25 June 2020, in which Recorder Shieh SC summarized the law on the enforceability of restrictive covenant at §32 and §§33(1) and (2) that:
99.I am of the view that a restrictive covenant against competition, entered into between a purchaser and a seller of a business, should be upheld when necessary, especially when the agreement has been negotiated at arm’s length between two business entities. 100.In Thorsten Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, Lord Macnaghten stressed that one might not “sell the cow and sup the milk”, at page 572-573, he said:
101.Returning to the facts of this case, F Food HK and the Defendants negotiated and entered into the Contract at arm’s length. In exchange for a $1.5 million payment from F Food HK, the Defendants agreed to relinquish their rights or ability to engage in a similar business in Hong Kong for a period of 84 months. 102.In my opinion, the true essence of the Contract is that the primary subject of the sale is the goodwill of the Business and its customer base; the operating tools, equipment, and even the workshops are secondary. Thus, F Food HK’s right over the acquired goodwill and the associated client base must be protected. 103.From a public-interest perspective, the transaction involves the transfer of an existing business, which will continue to be operated by F Food HK. Upholding the covenant would not in any way prejudice the existing customers or society at large. 104.Further, Yeung admitted that substantial time and effort would be needed to build up and/or secure regular customers for the Business. He described this process figuratively as “要煲啲客”. And customers of the Business would continue placing orders with him rather than with the new owner if he continued to operate a frozen food business. 105.One also has to bear in mind that,
106.In the specific circumstances of this case, I further find the restriction, both in terms of time and space, that clause 2.7 seeks to impose is reasonable. I do not consider it just or appropriate to permit the Defendants to avoid the non-competition provision at issue. Nor is there any justification on public policy grounds for not upholding this provision. 107.For the above reasons, I hold that clause 2.7 of the Contract is valid and enforceable. Setting up and operation of a new frozen food wholesale business (Goodsview) in competition with F Food HK 108.In light of my factual findings in section F2 above, the Defendants were plainly in breach of clause 2.7 of the Contract. Implied duty of good faith and fidelity 109.F Food HK contended that, by implication, in performing their obligations under the Contract, the Defendants owe F Food HK a fiduciary duty and a duty of good faith. 110.It was denied by the Defendants. Ms Kwong submitted that F Food HK’s plea regarding the said duty is defective; nothing has been pleaded as to the basis, how, or why any alleged fiduciary duty or duty of good faith and fidelity would arise. No particulars have been provided by F Food HK. 111.Ms Kwong also contended that, on the facts of this case, there is no discernible basis for imposing a duty of good faith and fidelity on the Defendants. With respect, I do not agree. 112.It is to be noted that what was being transfer under the Contract was, as described in clause 1.2, “營運中及洽談中之所有業務、所有客戶及所有供應商 (甲方須轉讓並提供所有客戶及所有供應商予乙方跟進) ” (All businesses, customers, and suppliers that are in operation or under negotiation (Party A shall transfer and provide all customers and all suppliers to Party B for follow-up). 113.It was clear from the evidence that details of F Frozen Food’s businesses, customers and suppliers in operation or under negotiation were within the peculiar knowledge of the Defendants only; F Food HK and Mak or Cheung had no knowledge of the same. Therefore, in agreeing to purchase the Business, Mak and Cheung (acting on behalf of F Food HK), as a matter of course, must have reposed confidence and trust in the Defendants that the latter would take steps to effect the transfer in good faith with best or reasonable endeavours. There were elements of trust and confidence in the Defendants, and of dependence and vulnerability in F Food HK, in the relationship between the parties. See the relevant legal principle explained by the Court of Appeal in Hong Jing Company Limited v Zhuhai Kwok Yuen Investment Company Limited [2013] 1 HKLRD 441, at §37.1, §37.18 to §37.23:
114.Even if I am wrong in holding that the relationship between the parties gave rise to a duty of good faith, giving the nature of the Defendants’ obligations set out in the express terms quoted above, I am of the view that, either as a matter of construction or it goes without saying, the Defendants shall perform the Contract, in particular those obligations, honestly and with integrity. 115.Unfortunately, the Defendants failed to do this. Failure to transfer business and clients 116.Pursuant to clause 1.2 of the Contract, the Defendants have to transfer the business of F Frozen Food to F Food HK, which includes business in operation and under negotiation, and all the customers and suppliers. It is specifically provided that the Defendants must provide all customers and suppliers to F Food HK for follow-up. On proper construction, it must mean providing F Food HK with the necessary information about customers and suppliers, including, for example, names, addresses, telephone numbers, or contact information, types of frozen goods supplied, payment terms, etc. 117.Under cross-examination, Yeung indeed accepted and confirmed that, in order to facilitate the transfer of the entire Business to F Food HK, the Defendants had to:
118.However, Yeung failed to do so; despite Mak’s repeated requests, Yeung did not provide a list of clients/customers with sufficient details to enable F Food HK to follow up. Mak was adamant that very little information regarding the customers’ contact details could be found in the computer, and his repeated requests were ignored by Yeung. 119.It was not until a month later that Yeung provided Mak a handwritten, but incomplete, list of customers. Under cross-examination, Yeung effectively admitted that the belated handwritten list he prepared was incomplete; he even suggested that Mak could have visited the customers to obtain their phone numbers. 120.The transfer of the Business took place on 1 September 2021; however, Yeung failed to promptly inform customers/clients of the change of ownership of the Business, and when Yeung purported to do it much later, Yeung intentionally misstated the date of transfer and still asked customers/clients to continue contacting him and to pay him directly.
121.In an attempt to salvage his failures, in cross-examination, Yeung asserted for the first time that (a) he had orally informed the customers, who called him, that the Business had been transferred to F Food HK and asked them to place orders with it, and (b) since 1 September 2021, he had planned to bring Cheung and Mak, or their representatives, to visit the customers in person, which he said would be better than sending notices. However, there was no evidence showing that Yeung had ever proposed a date for the intended visits. If these were true, they would have been set out in the Defendants’ pleadings or Yeung’s witness statements. As they were not, it was probably another fabrication of Yeung, which I reject. 122.It is clear from the evidence that Yeung deliberately concealed the transfer of the Business from the customers; what Yeung did was, self-evidently, to pave the way to misappropriate F Food HK’s receivables for the frozen foods supplied to its customers after 1 September 2021, which is the subject matter of F Food HK’s misappropriation claim in this action. At the very least, it was a clear breach of clauses 1.2 and 2.3 of the Contract. Diversion of business to Goodsview 123.Furthermore, there was evidence to show that, during the period from 1 September 2021 to 14 October 2021, when Yeung purportedly assisted F Food HK to run the Business, Yeung had been diverting F Food HK’s businesses to Goodsview.
124.As I have no reason to disbelief Ms Wong, I am satisfied that Yeung has been diverting F Food HK’s businesses to Goodsview during the transition period, when Yeung was supposed to assist F Food HK with the Business, and thereafter, in breach of clauses 1.2 and 2.3 of the Contract, in that Yeung failed to perform the Defendants’ duties prescribed thereunder, or perform the same honestly and with integrity. Poaching former staff/employees and transport contractors of the Business 125.Regarding the Defendants’ duty, under clauses 2.5 and 2.6 of the Contract, to assist F Food HK in retaining F Frozen Food’s employees and transportation contractors after the transfer, not only has Yeung done nothing to help F Food HK retain the existing employees and transport drivers, in blatant disregard of the Defendants’ obligations under the Contract, he actually solicited the ex-employees and transport drivers to work for Goodsview; as a result, most of them left F Food HK shortly after the transfer of the Business and joined Goodsview. I set out the relevant evidence below. 126.At the time of the transfer of the Business on 1 September 2021, F Frozen Food’s four existing employees, namely two frozen food chefs – 古燕忠 (古師傅) and 師傅阿文 (Lam Sik Man), and two part-time warehouse general workers – 孔詠如 and劉宇星, stayed and became F Food HK’s employees. But soon after, in October 2021, all except 古燕忠 left F Food HK; two of them did not even bother to serve a notice of resignation, they simply disappeared and did not return. At the end, only 古燕忠 remained and continued working for F Food HK. 127.Mak subsequently learned from Ms Wong that they all worked for Yeung at Goodsview and Goodwill. 128.Furthermore, on 30 September 2021, the drivers who had originally delivered goods for F Frozen Food and, after the business transfer, for F Food HK, suddenly notified Mak that, starting in October, they would no longer be delivering goods for F Food HK. 129.It was Ms Wong’s evidence that, shortly after Goodsview was established, Yeung had already arranged for all the former employees of F Frozen Food to be transferred to the new company. In mid-September 2021, Yeung employed two new staff members for F Frozen Food, called Marco and 禮哥. At that time, Yeung asked Ms Wong to contact Marco, while he himself would contact 禮哥, 師傅阿文, 古師傅, and the former transport driver. As a result, except for 古師傅, all former employees have joined Goodsview. 師傅阿文joined the new company in mid-October. In addition, some former sales staff, including Yeung Ka Chai, have also joined Goodsview. Meanwhile, I note that Yeung Ka Chai was appointed as a director of Goodwill, which, according to Mak, is Yeung’s company. 130.Furthermore, Yeung also contacted the suppliers of F Frozen Food and arranged for them to supply goods to Goodsview. 131.In cross-examination, Ms Wong emphasized that when she attended the workshop in Yuen Long, she saw former F Frozen Food employees working there. 132.According to the evidence I quoted above, which I accept, Yeung’s act constituted a breach of clauses 2.5 and 2.6 of the Contract. Failure to cooperate for the transfer of the Licence 133.It is common ground that the Licence was not transferred to F Food HK; the issue is which party was responsible for such failure. 134.Pursuant to clause 2.2 of the Contract, the Defendants shall provide the necessary documents for the transfer of the Licence to F Food HK for follow-up, and must cooperate to successfully transfer the Licence. 135.Mak testified that Yeung did not attend FEHD in person to sign the relevant documents to formally transfer the License from F Frozen Food to F Food HK. 136.However, Yeung said that the Defendants had in fact performed their part of the agreement. The License was ready to be transferred; it was not done because Mak refused to or did not attend FEHD to complete the necessary paperwork. 137.Mr Koo submitted that Yeung’s evidence was bare and self-serving assertions; there is no documentary evidence in support of such assertions. He further pointed out that, in fact, the following contemporaneous WhatsApp messages between Mak and Yeung contradict Yeung’s evidence.
138.Those contemporaneous messages support Mak’s evidence, which stated that, at that time, Yeung proposed to buy back the Licence, and that if it was accepted by F Food HK, Yeung would not go to sign the transfer papers at FEHD. 139.In any event, the end of the first message from Yeung on 3 October 2021 clearly shows that, at that point, it was Yeung, not Mak, who needed to go to FEHD to sign the necessary papers for the transfer of the Licence. There is no evidence from Yeung that he has ever done it. 140.In the circumstances, I find that, for the purposes of clause 2.2 of the Contract, the Defendants failed to co-operate to effect the transfer of the Licence to F Food HK. Consequence of the breaches 141.Because of the Defendants’ wrongful acts mentioned above, in particular their failure to transfer the Licence to F Food H as promised, and Yeung’s misappropriation of F Food HK’s stocks and receivables to be discussed below, F Food HK was not able to continue operating the Business. It therefore had no choice but to cut its losses by finding someone willing to take over the frozen food wholesale business. 142.At the time, through the introduction of Mr 陳志杰 (“Mr Chan”), who was the owner of Mou Hing Global Foods Company Limited, Mak met Ms 葉秀萍 (“Ms Yip”), who expressed interest in buying a food processing factory. Mr Chan and Ms Yip then inspected Workshop 1717 and Workshop 2801 together with Mak. 143.Afterwards, Mak and Ms Yip met several times to discuss. Finally, they reached an oral agreement under which Ms Yip agreed to take over the tenancy of Workshops 1717 and 2801, together with the internal fixtures, fittings, tools, and equipment, for $200,000. The sale did not include the Licence or any government licence for food processing work inside. Therefore, Ms Yip needed to apply for a new food processing licence for those workshops. 144.Furthermore, the sale to Ms Yip did not include F Food HK’s existing business or customers, as there was not much left at that stage due to Yeung’s wrongful act. Mak therefore only promised to assist Ms Yip in taking over the business and that he would not approach the former customers in the future. 145.Pursuant to their oral agreement, Ms Yip paid Mak $200,000 on 20 January 2022. The payment was supported by documentary evidence. F4. Remedies for fraudulent misrepresentation and breach of contract Rescission is inappropriate 146.One of the remedies claimed by F Food HK is rescission of the Contract. 147.The general rule is that there shall be no rescission if what was passed under the contract cannot be restored.
148.In the present case, the leases for Workshop 1717 and Workshop 2801 were transferred to Ms Yip (or her company) under the oral agreement; they cannot be restored to F Frozen Food. Although the Defendants may be properly compensated for the value of the food processing tools and equipment passed under the Contract, if necessary, I am of the view that F Frozen Food’s entitlement to Workshop 1717 and Workshop 2801 (including the associated chances of renewal of tenancy of the Workshops) cannot be quantified in money terms and be replaced with any form of financial compensation. 149.As such, it is inappropriate to grant rescission in the present circumstances. Damages in lieu of rescission 150.It is trite that, if rescission is not available, the victim (ie the representee) of a fraudulent misrepresentation is entitled to damages (in lieu), which is to be measured as the actual damage directly flowing from the fraudulent misrepresentation.
151.Pursuant to the terms of the Contract, F Food HK made the following payments to the Defendants:
As a matter of course, had Mak and Cheung not been induced to enter the Contract, they would not have agreed to pay the rental deposit for Workshop 1717 and Workshop 2801 or to purchase the existing stock of F Frozen Food. 152.Further, on 2 October 2021, Mak paid Yeung an additional $200,000. The parties dispute the nature of this payment: Mak contended it was made at Yeung's request to assist with Yeung’s cash flow, while Yeung maintained that the payment signified Mak’s confirmation that the Defendants had fulfilled the contractual requirement concerning the transfer of the Licence. 153.As both parties accept that this amount must, in any event, be treated as part of the contract sum paid by F Food HK/Mak, it is unnecessary for me to rule on this issue for present purposes. However, if required, I would prefer the evidence provided by Mak. 154.Regarding the operation of the Business after 1 September 2021, Mak’s evidence was that it was a losing business (due to the Defendants’ wrongful acts), and that he had no choice but to sell it to cut his losses. However, F Food HK adduced no evidence as to the extent of the further losses suffered in the operation of the Business. 155.Hence, without considering the losses suffered in the operation of the Business, the actual loss suffered by F Food HK directly flowing out from the fraudulent inducement would be a total sum of $1,223,200.[5] 156.However, I note that, both in F Food HK’s pleadings and closing submissions, F Food HK does not seek to recover the $23,200 deposit paid for the transfer of the workshops’ lease. I therefore hold that F Food HK is entitled to damages for fraudulent misrepresentation in the sum of $1,200,000. Contractual damages 157.Mr Koo submitted that F Food HK’s claim for contractual damages is raised as an alternative to its fraudulent misrepresentation claim. 158.As I have found in favour of F Food HK on its fraudulent misrepresentation claim, it is, in principle, not necessary for me to deal with the contractual damages claim. 159.However, for the sake of completeness, if I am wrong on the misrepresentation claim, as I have found in section F3 above that the Defendants were also in breach of the Contract, F Food HK would be entitled to damages for breach of contract. 160.As explained by Deputy Judge Marlene Ng (as she then was) in Ng Chi Kwan, Danny Summer and Another v Yeung Yiu Kwan and Another [2014] 5 HKLRD 744, if a claimant cannot prove what his profits would have been had the contract not been breached, he may elect to claim expenditure which has been thrown away, or wasted, by reasons of the breach.
161.Mr Koo submitted that there is no evidence showing F Food HK’s loss of profit, and as such, if necessary, F Food HK would seek damages for breach of contract for the total sum of HK$1,200,000, being the contract price paid ($1,250,000) plus $150,000 for the inventory minus the $200,000 received from Ms Yip. 162.The breaches committed by the Defendants went to the root of the Contract; I see no reason why F Food HK is not entitled to have the damages measured on reliance basis, if F Food HK so elects; I therefore further hold that, as an alternative to damages for fraudulent misrepresentation, F Food HK is also entitled to damages for breach of contract in the sum of $1,200,000. Declaratory relief is unnecessary 163.F Food HK also seeks a declaration that the Defendants were in breach of the Contract. 164.The court’s power to make a binding declaration is a discretionary power. In exercising its discretion, the court will consider whether any useful purpose will be served by granting the declaration sought. If a declaration would not serve any practical purpose, this will weigh heavily in the scales against the grant of declaratory relief. It was held by Deputy Judge Jin Pao SC in Equis (Hong Kong) Limited v George Allen Cowan [2021] HKCFI 768, at §39, that:
165.In the present case, I have already found that the Defendants were in breach of the Contract and held that F Food HK is, thereby, entitled to damages. F Food HK has sold Workshop 1717 and Workshop 2801, together with the tools and equipment therein, to Ms Yip back in January 2022. There is no live issue, as I can see, between the parties beyond money compensation. 166.A declaration that the Defendants were in breach simply states the legal conclusion this court has already reached; it adds little, if any, where the judgment already awards damages on that basis. In my view, a further declaration to the same effect is duplicative and is thus unnecessary. F5. Misappropriation and Conversion 167.This claim consists of two parts: (a) the misappropriation of frozen food receivables belonging to F Food HK for goods supplied to its customers from September to October 2021, and (b) the conversion of goods belonging to F Food HK valued at over $200,000. 168.With respect to the claim of misappropriation of receivables owed to F Food HK, the relevant evidence is set out in paragraphs 52 to 123 of Mak’s witness statement, which I do not repeat in this judgment. In summary, Mak’s evidence is that for the goods supplied by F Food HK to its customers in September and October 2021, Yeung, without the knowledge or permission of F Food HK, wrongfully and dishonestly instructed customers to either pay him directly or deposit the money into his wife’s or the sales team’s personal accounts. Many customers complied. After receiving the payments, Yeung failed to account for the money or return it to F Food HK. 169.The payments made by various customers and the corresponding amounts misappropriated by Yeung, to varying degrees, are supported by documentary records. Mr Koo has helpfully summarised these in Schedule 2 of his written closing submissions. The total misappropriated amount is $66,396.00. Mr Koo submitted that this claim is based on documentary evidence compiled by F Food HK, and therefore represents the lower bound of the actual sum misappropriated by Yeung. 170.Yeung does not dispute the amounts stated by Mak; his only defence is that he repaid Mak the alleged sums in cash, but there is no documentary record of any such repayments. I do not accept Yeung’s evidence. It is commercially illogical for Yeung to have repaid various sums to Mak on different days in cash, rather than by bank transfer with traceable payment records. Besides, Yeung’s answer under cross-examination, that the customers paid him in cash and he passed it over to Mak on the same day, is inconsistent with the documentary evidence, in which Yeung asked the customers to deposit the money into his account or his wife’s. It also contradicts what Yeung said in his WhatsApp message dated 14 October 2021. Lastly, Yeung’s assertion of cash repayments, given in cross-examination, was not mentioned in his witness statements or the Defendants’ pleadings[6]. It is likely to be another on-the-spot fabrication; it is therefore rejected. 171.On balance, I am satisfied that Yeung has wrongfully and dishonestly misappropriated receivables owed to F Food HK in the amount of $66,396.00. Accordingly, I find Yeung liable to repay F Food HK this sum. 172.Regarding F Food HK’s claim for the stolen frozen foods, valued at over $200,000, F Food HK relied solely on Ms Wong’s verbal evidence, who stated: “他 [Yeung] 並曾親口告訴我說， 9月1號老友記冷凍就不再是他的，是屬於新買家的，而他要協助老友記冷凍的買家一個月，在這一個月內，新買家不懂打理生意，所以，他已悄悄地甘取走了新買家不少凍肉，為數20多萬港元…”[7] (He [Yeung] personally told me that, as of September 1, the frozen food business no longer belonged to him but to the new owner. He said he would assist the new owner of the business for a month, during which the new owner was inexperienced, so he secretly took away a considerable amount of frozen meat worth over HK$200,000 from the new owner…). 173.During cross-examination, Ms Wong explained that Yeung was able to misappropriate F Food HK’s frozen foods by destroying the invoices that recorded their supply. This enabled him to pocket the customers’ payments without leaving any trace. 174.Yeung admitted during cross-examination that it was possible to steal frozen foods from F Food HK in the manner Ms Wong described. However, this does not alter the fact that Ms Wong does not know whether Yeung actually did what he claimed. 175.As the claimant, F Food HK bears the burden of proof. Although Mak indicated that there were no complete or systematic records of frozen food purchases, sales, or inventory, F Food HK did have some invoices and delivery notes, albeit incomplete. In my view, after taking stock of its remaining inventory, F Food HK should have been able to show, at the very least, that some frozen foods were unaccounted for. However, it failed to adduce any evidence in that regard. 176.In view of the above, I hold that F Food HK has failed to discharge its burden of proof. Accordingly, its claim for the alleged stolen frozen foods is disallowed. F6. Exemplary damages 177.In F Food HK’s Re-Amended Statement of Claim, F Food HK claimed exemplary damages to be assessed. In Mr Koo’s closing submissions, he sought exemplary damages of no less than $300,000. 178.The principles governing the award of exemplary damages were explained in Promo International Ltd v Chae Man Tock and another [2018] HKCFI 284, at §§223 to 227:
179.In cases involving deceit, particularly when a compensatory award is inadequate to punish the defendant for his outrageous conduct, it would be appropriate to award exemplary damages.
180.For the purposes of the exemplary damages claim, the following conduct by the Defendants, particularly Yeung, is relevant for the court’s consideration:
181.Yeung’s wrongful actions were deliberate and premeditated. He orchestrated the fraudulent scheme in question with the clear intention of making a substantial profit for himself. In addition to the $1.5 million contract price, if the representations in the Advertisement were accurate, he would continue to earn over $200,000 per month in profit. 182.For these reasons, I am satisfied that a compensatory award of damages to F Food HK is inadequate to punish Yeung for his egregious conduct. 183.I am therefore of the view that this is an appropriate case for the court to mark its disapproval of Yeung’s conduct and to demonstrate that such conduct is wholly unacceptable to society. Accordingly, the award of exemplary damages against Yeung is justified in these circumstances. 184.In this regard, Mr Koo, in Schedule 2 of his written closing submissions, helpfully summarized a number of cases addressing the range of exemplary damages awarded by the court in various factual circumstances. He submitted that the most relevant is Mammy Pancake Company Ltd v Carla Day Ltd and Others [2024] 3 HKLRD 17, a case involving breaches of confidentiality and good faith, in which the court awarded exemplary damages of $300,000. 185.Another case that I find relevant is Willian Allan v Messrs Ng & Co. (A Firm) [2012] 2 HKLRD 160. In Willian Allan, the plaintiff filed for divorce from his wife. The plaintiff’s sister enquired with the defendant firm on the prospect of the defendant firm representing the plaintiff. She disclosed confidential information to the defendant firm, including the plaintiff’s stance on custody and financial issues, and the merits of the wife’s case. She was assured by the defendant that the conversation and contents would be kept confidential. Thereafter, the defendant accepted instruction from and represented the wife in the divorce proceedings. The defendant filed two affidavits in opposition to the plaintiff’s application for an injunction restraining the defendant from acting for the wife. 186.The first instance judge found that the defendant “… had committed a knowing breach of confidentiality with a view for gain. He prepared his two affidavits knowing that they were false in material particulars for the purpose of enabling him to continue to act for the wife, which he knew was in breach of the solicitors’ code of conduct and would put him in the impossible position of conflict and breach of his duty of confidentiality owed to the plaintiff as quasi-client. As a solicitor and an officer of the court, he had perjured and practised a fraud on the court. Not only was he not entitled to be reimbursed his costs in the injunction application, he should have ceased to act for the wife and paid the plaintiff’s costs of that application. Further, he knew the plaintiff’s mental health was quite unstable when he took out the bankruptcy proceedings against the plaintiff, which did not have the support of the wife, the insurers and one of the partners of the 1 st defendant. The judge found his conduct “extremely outrageous”, “utterly unreasonable”, a persecution of the plaintiff and a contumelious disregard of the plaintiff’s right and held that the court must show its disapproval of such conduct.” 187.The Court of Appeal found that this was a bad case of perjury and deceit practised by a solicitor on the court. Having taken into consideration that the defendant would face disciplinary proceedings to be brought by the Law Society, the Court of Appeal assessed exemplary damages at $400,000 in 2012. 188.Returning to the facts of this case, I find that Yeung’s reprehensible conduct amounted to outright fraud perpetrated against F Food HK, Mak, and Cheung. Moreover, the misappropriation of F Food HK’s receivables, as described by Mak, in fact constituted theft. The seriousness of this misconduct exceeds that in Mammy Pancake Company Ltd, though it is (only slightly) less severe than in Willian Allan. Taking inflation since 2012 into account, I award exemplary damages of $380,000 against Yeung, with interest on this sum accruing from the date of this judgment (Willian Allan at §76). G. COUNTERCLAIM 189.As I have held above, the Defendants are liable for fraudulent misrepresentation, and F Food HK is entitled to damages in lieu of rescission. It must follow that the Defendants are not entitled to the outstanding sum under the Contract. 190.Furthermore, I have also found that, in breach of clause 2.2 of the Contract, the Defendants failed to transfer the Licence to F Food HK. Pursuant to clause 6.3, the Defendants were therefore not entitled to the remaining 30% of the contract sum, which includes the outstanding $200,000. 191.I therefore hold that the Defendants are not entitled to the amount counterclaimed. 192.While the court has not recited every detail from the witnesses’ statements and oral testimonies, it has duly considered them in reaching the findings set out above. H. CONCLUSION 193.In the premises, I make the following orders:
Mr Ernest Koo, leading Mr Rex Yam, instructed by Simon C W Yung and Co., for the plaintiff (by original action) and the 1st and 2nd defendants (by counterclaim) Ms Claris Kwong, instructed by Tong & Tsoi, for the 1st and 2nd defendants (by original action) and 1st and 2nd plaintiffs (by counterclaim) [1] Bundle B2/662-680 [2] In cross-examination, faced with the WhatsApp records, Yeung explained that the factory/storage that he asked Ms Wong to set up for him in August 2021 was actually a warehouse for storing stocks for his “燒味” (BBQ food) business. It was not for the alleged frozen food wholesale business. However, despite the fact that the WhatsApp messages had been disclosed by F Food HK back in November 2023, Yeung failed to plead it in his Re-Re-Amended Defence and Counterclaim dated 18 April 2024 or mention the same in his supplemental statement dated 20 February 2024; it is clearly Yeung’s on-the-spot fabrication, which I reject. [3] B2/526 [4] The agreement for the purchase of the existing stock was set out in a document entitled “對數表” signed by Yeung and Cheung [B1/363], which forms part of the Contract as disclosed by F Food HK under PLOD-22 [5] Being $450,000 + $600,000 + $23,200 + $150,000 + $200,000 - $200,000 [6] In the Re-Re-Amended Defence and Counterclaim, Yeung merely put F Food HK to strict proof. [7] Witness statement of Ms Wong, §27 [A/155/§27] [8] The general principles regarding exemplary damages are set out at pages 178-179, §§52-56, per Kwan JA; and p 196, §§85-87, per Fok JA. [9] At para 52 pg 178 [10] At para 52 supra; at para 20, A v Bottrill pg 178 |
Cases cited in this judgment