GOLDEN MILES GROUP HOLDINGS LTD v. JACOB & CO LTD

HCA 2453/2017

[2025] HKCFI 663

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2453 OF 2017

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J U D G M E N T

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A.  INTRODUCTION

1.  This action arises out of an agreement dated 18^th November 2016 (“theAgreement”), under which the Defendant (“Jacob & Co”) granted the Rights (as therein defined) to the Plaintiff (“Golden Miles”) and engaged Golden Miles as its sole and exclusive distributor for the marketing and sale of the Products (defined to include watches and jewellery in the brand name of “Jacob & Co”) in the Territory (defined as Hong Kong, Macau and the PRC) for a period of ten years.

2.  Jacob & Co says that it validly terminated the Agreement in September 2017 for Golden Miles’ failure to pay an amount said to be owed to Jacob & Co of US$470,198.15 (“the Disputed Amount”). Golden Miles says that there was an oral agreement in March 2017 (“the Alleged Oral Agreement”) between the parties which meant that no amount was owing to Jacob & Co at the time of the alleged termination. Jacob & Co says that it subsequently further discovered that Golden Miles had submitted a false account of its expenses, providing an additional reason to justify the termination of the Agreement.

3.  Golden Miles therefore claims that Jacob & Co wrongfully terminated the Agreement. Its pleaded case seeks, inter alia:

3.1  a declaration that the Agreement is valid and subsisting and that Golden Miles remains as Jacob & Co’s exclusive distributor in the Territory;

3.2  a declaration that Jacob & Co is liable to indemnify Golden Miles for sums which it might be held liable to pay to Prince Jewellery and Watch Company Limited (“Prince Jewellery”) as a result of the termination;

3.3  an injunction restraining Jacob & Co from (inter alia) marketing or selling Products anywhere in the Territory except through Golden Miles until the expiry or valid termination of the Agreement;

3.4  an injunction restraining Jacob & Co from (inter alia) representing to anyone that the Agreement has been terminated or that Golden Miles has ceased to be Jacob & Co’s exclusive distributor in the Territory until the expiry or valid termination of the Agreement;

3.5  damages to be assessed.

4.  Jacob & Co denies liability and contends that it validly terminated the Agreement pursuant to cl.7.2(a) of the Agreement for Golden Miles’ failure to pay the Disputed Amount; alternatively, for Golden Miles’ repudiatory breach of contract, given its false account of expenses. Jacob & Co counterclaims, inter alia, for:

4.1  a declaration that it has validly terminated the Agreement;

4.2  a further sum of US$572,773.35 said to be owed by Golden Miles to it;

4.3  damages for breach of cll.7.6(c), (d) and (f) of the Agreement in opening a shop in Macau without Jacob & Co’s consent;

4.4  an injunction restraining Golden Miles from (inter alia) using Jacob & Co’s intellectual property and from operating any shop bearing the name “Jacob & Co”.

B.  THE BACKGROUND

5.  Unless otherwise indicated, the following facts are undisputed or indisputable, and I find them as facts. Matters from the parties’ agreed statement of facts and chronology have also been incorporated.

B1.  The parties

6.  Golden Miles was incorporated in Hong Kong.

7.  Ms Ho Ming Yuk, also known as Ms Winnie Ho (“Ms Ho”), was at all material times the sole shareholder and sole director of Golden Miles. She was the directing mind of Golden Miles insofar as the Agreement was concerned.

8.  Other staff or former staff and representatives of Golden Miles included the following:

8.1  Ms Charl Cheng (“Ms Charl Cheng”), a marketing manager;

8.2  Ms Yan Ka Man Emily (“Emily”), a marketing executive from 8^th August 2017 to May 2018;

8.3  Ms Nicola Wu (“Nicola”), a former full-time member of staff;

8.4  a “Vicky” (“Vicky”), a former member of staff;

8.5  Mr Terry Yeung (“Mr Terry Yeung”), a business partner of Ms Ho.

9.  Ms Ho also set up another company, Brands International, whose name was sometimes used in communications with Jacob & Co.

10.  Jacob & Co was incorporated in Switzerland. At all material times it was a manufacturer of luxury watches under the brand of “Jacob & Co” sold across the world.

11.  Mr Jacob Arabo (“Mr Arabo”) founded, owned and controlled Jacob & Co.

12.  Other staff or representatives of Jacob & Co included the following:

12.1  Mr Maurizio Mazzocchi (“Mr Mazzocchi”), a director and the Chief Executive Officer of the Jacob & Co. He had left Jacob & Co by the time of the trial;

12.2  Mr Lam Yen Er, also known as Mr Lawrence Lam (“Mr Lam”), a representative of Jacob & Co until some time before the Covid-19 pandemic. Jacob & Co supplied Mr Lam with name cards describing him as the “Head of Asia-Pacific” of Jacob & Co and giving the contact details of Jacob & Co’s office in Geneva, Switzerland. Mr Lam was in fact not an employee of Jacob & Co but an independent contractor, and Ms Ho was not aware of this at the material time. Mr Lam explained at trial that he was responsible for meeting Jacob & Co’s distributors, introducing Jacob & Co’s products to them and encouraging them to buy appropriate items, and to collect and chase for money due from distributors, based on the invoices issued from Jacob & Co’s headquarters in Geneva;

12.3  Mr Caquim Gomis (“Mr Gomis”), the Chief Finance Officer until April 2021;

12.4  Ms Bopha Oun (“Ms Oun”), the Marketing & Sales Manager until December 2018.

B2.  Jacob & Co’s presence in Hong Kong prior to Golden Miles’ involvement

13.  From 2005 to 2013, Jacob & Co appointed King Fook Jewellery Group Ltd (“King Fook”) as its exclusive retailer of Jacob & Co’s watches in Hong Kong. At trial, one of the agreements between the parties dated 1^st April 2018 was placed before the court; it was said that it was essentially on the standard terms of Jacob & Co. During the nine-year period, King Fook advertised Jacob & Co watches extensively in Hong Kong.

14.  During the same period of time, Jacob & Co itself sold jewellery and gemstones in Hong Kong, as these items were not covered by the agreements with King Fook.

15.  King Fook ceased to be the distributor in 2013 as it had sought to become the exclusive distributor for the whole of Asia, but Jacob & Co was not agreeable to this. Thereafter, until the Agreement was made in November 2016, Jacob & Co advertised its watches and jewellery in the Territory (Hong Kong, Macau and mainland China).

B3.  The Agreement

16.  The Agreement was drawn up by Golden Miles’ then solicitors. It was signed on 18^th November 2016.

17.  It defined a number of terms as follows.

“Business”: “The promotion and sale of the Products by the Distributor [Golden Miles] in the Territory.”

“Rights”: “The sole and exclusive right of the Distributor [Golden Miles] to carry on the Business within the Territory for the term as set out in this Agreement unless earlier determined as provided for in this Agreement using the intellectual property of the Products.”

18.  The Agreement contained, inter alia, the following terms.

1. Appointment and Engagement

1.1 [Jacob & Co] hereby grants the Rights to [Golden Miles] and appoints and engages [Golden Miles] as its sole and exclusive distributor in the Territory for the purpose of marketing and selling the Products in the Territory and [Golden Miles] hereby accepts such appointment and engagement subject to the terms and conditions as hereinafter stated.

1.2 [Jacob & Co] hereby undertakes not to

(a) sell or attempt to sell the Products (whether directly or indirectly) in to or for the Territory during the term of the Agreement; or

(b) appoint or engage any other or additional sales representatives, agents or distributors to do so.

2. Distributor’s Obligations and Rights

2.1 [Golden Miles] hereby agrees with [Jacob & Co] throughout the term of this Agreement to:

(a) promote the Products in the Territory;

(b) promote and procure sales of the Products in the Territory by appropriate means which the Distributor shall consider as appropriate;

(c) act loyally and faithfully towards the Supplier in relation to the Business;

(d) conduct the Business in an orderly and business-like manner;

…

(h) spend no less than 10% of the Net Profit arising from the sale of the Products in the Territory on marketing and promoting the Products;

…

(j) keep [Jacob & Co] informed about economic developments and market conditions in the Territory and about the activities of competitors;

(k) submit written reports at regular intervals to [Jacob & Co], showing levels of sales, and orders placed by [Golden Miles] with the Supplier that are still outstanding, and any other information relating to the performance of its obligations under this agreement that [Jacob & Co] may reasonably require from time to time.

2.2 Subject to Clause 4 hereof, [Golden Miles] shall purchase the Products from [Jacob & Co] on its own behalf on own account in order to resell them in the Territory and it acts as an independent trader towards both [Jacob & Co] and the customer. …

2.3 [Golden Miles] may operate branded Product boutiques or flagship stores for the Products sited within the Territory, provided that [Jacob & Co] provides its consent to the location and presentation of such boutiques/stores (such consent not to be unreasonably withheld).

3. Supplier’s Obligations

3.1 [Jacob & Co] hereby agrees with [Golden Miles] throughout the term of this Agreement to:

(a) not either itself or through any agent, sales representative or other distributor directly or indirectly to infringe on the Rights;

…

(d) pay 50% of the cost of all advertisements, promotional activities or otherwise incurred by [Golden Miles] and [Golden Miles] may set off such cost owing to it by [Jacob & Co] against any amount payable to [Jacob & Co] by [Golden Miles] from time to time.

…

(l) not derogate from the Rights;

…

(p) agree in advance with [Golden Miles] any advertising, marketing and promotional activities conducted by [Jacob & Co] in the Territory;

(q) allow [Golden Miles] to send its personnel, employees or representatives to attend all advertising, marketing and promotional activities and such technical sales and service training sessions with respect to the Products hosted or arranged by [Jacob & Co] worldwide other than in the Territory in order to allow [Golden Miles] to effectively market and sell the Products;

…

4. Sale of Products to the Distributor

4.1 [Jacob & Co] and [Golden Miles] hereby agree that the Products shall be sold by [Jacob & Co] to [Golden Miles] [and] the price to be paid by [Golden Miles] will be calculated as 65% discount off the International Retail Price…

…

4.5 Where the purchase price of the Products is not covered by deposits paid in accordance with clause 4.2, [Golden Miles] shall pay 10% of purchase price of the Products payable by [Golden Miles] to [Jacob & Co] upon the receipt of [Jacob & Co’s] Invoice and [Golden Miles] agrees to pay and settle the outstanding balance of [Jacob & Co’s] invoices duly issued for the Products in the Territory via direct bank transfer to a USD account in the name of [Jacob & Co] within thirty (30) days of receipt of the Products by [Golden Miles].

…

5. Intellectual Property Rights

…

5.2 [Golden Miles] may use the trade-marks and all other intellectual property rights owned by [Jacob & Co] for the sale and promotion of the Products within the validity of this Agreement…and shall acknowledge that all patents, trademarks, copyrights or any other industrial property rights used or embodied in the Products shall remain to be the sole Properties of [Jacob & Co].

…

7. Duration and Termination of Agreement

7.1 Subject to clause 7.2 herein, this Agreement … shall be valid for a period of ten (10) years. [Golden Miles] will target to achieve the purchase in aggregate US$1.8 million of Products in the fourth year of this Agreement.

7.2 Either party hereto may terminate this Agreement without prior notice and having immediate effect in the following circumstances:

(a) if the other party does not cure any breach or default within thirty (30) days after written notification thereof…”

(b) if the other party goes into liquidation either compulsory or voluntary … or if a receiver is appointed … or if makes an assignment for the benefit of … its creditors … or any similar occurrence…

…

7.4: … If [Jacob & Co] terminates this Agreement without any default of [Golden Miles] in the first three years from the date of this Agreement, [Jacob & Co] should pay US$5,000,000 as and for liquidated damages to Golden Miles within ninety (90) days thereof. For any each anniversary thereafter, additional US$1,000,000 shall be added. Should [Jacob & Co] fails to pay to the Distributor within ninety (90 days), interest at 36% per annum shall apply.

…

7.6 On the expiry or other termination of this Agreement [Golden Miles] undertakes the following:

…

(c) forthwith to cease to use [Jacob & Co’s] intellectual property (Golden Miles’ licence to use which is terminated) and to sign such confirmation of cessation of use of the same as is required by [Jacob & Co];

(d) to cease operation of any branded boutiques opened by it in accordance with clause 2.2,

…

(f) forthwith to cease carrying on the Business.

…

11 Miscellaneous Provisions

11.4 The parties acknowledge that this Agreement contains the whole agreement between the parties and it has not relied upon any oral or written representations made to it by any party or its employees or agents and has made its own independent investigations into all matters relevant to the Business.

11.5 This Agreement constitutes an integral agreement reached between the parties hereto and any previous representations warranties and agreements expressly or implied made are hereby superseded, waived and/or revoked.

…

B4.  Correspondence between the parties prior to the Alleged Oral Agreement

19.  On 21^st November 2016, shortly after the Agreement was signed, Mr Lam emailed Ms Ho, saying “As in all International Corporations, please ALWAYS share and plan your ideas ahead of time.” He asked her to state her plans in 2016 and 2017, and continued “Naturally, these are all tied to a BUDGET. Technically, we Jacob HQ will subsidise 50% of your YEAR’S ANNUAL Marketing Budget (amount to be agreed) and for Projects that we feel that is aligned to our Global Strategy…”. He then set out a few examples of areas to be avoided in the conduct of promotion of the Products.

20.  On the same day, Ms Ho[1] replied to Mr Lam, copying Mr Mazzocchi, setting out six marketing ideas for 2017. Mr Mazzocchi replied on 22^nd November 2016 with his comments, indicating agreement with some but not all of the ideas.

21.  On 30^th December 2016, Mr Lam emailed Ms Ho requesting that she report her monthly sales and stock.

22.  On 19^th January 2017, Ms Ho emailed Ms Oun, setting out details of publicity conducted in 2016 and planned for 2017. Ms Oun replied on 24^th January, asking for details of some of the points, including details of the expenses said to have been incurred for 2016. Ms Oun further calculated that as Golden Miles’ turnover for 2016 was US$2,773,875,

“10% of turnover = marketing cost = [US$ 277,387.50]

50/50 = for Jacob & Co

50/50 for Brands International

JACOB & CO SA must approv[e] all project BEFORE execution – without a clear approval, Jacob & Co can’t be responsible for sharing the fees.”

23.  On 23^rd January 2017, Mr Lam sent an email to Nicola, saying that normally, headquarters had to be advised of promotion projects and detailed costing for approval before Golden Miles started on them, and asking for a breakdown of the cost of the “Prince Event”. “Even though we are supposed to share this 50/50, it is your OBLIGATION… to provide us with the full details.”

24.  On 31^st January 2017, Mr Lam sent an email to Nicola, asking for further details of various aspects of the cost for the “Prince Event”, and reminding her that these and other details of the event were standard marketing information that was required from Jacob & Co’s partners.

25.  On 14^th February 2017, Ms Ho emailed Ms Oun, indicating that Golden Miles wanted to sponsor a campaign in the Hong Kong Oxfam Marathon and asking for Ms Oun’s suggestion. Ms Oun responded that sports sponsorship was not part of Jacob & Co’s strategy.

26.  On 16^th February 2017, Ms Ho emailed Ms Oun, stating that Golden Miles wanted to use a watch for an auction, and asking for suggestions. Ms Oun replied that the schedule of the auction was too close to the Baselworld event and they would not be able to prepare for it properly, so that they would rather postpone participation to another occasion.

27.  On 16^th February 2017, Mr Lam emailed Ms Ho, copying Mr Mazzocchi and Ms Oun, saying that he had discussed the “Sales Agreement” proposed by Prince “and we find it too punishing for your Co”. He noted that it would leave Golden Miles with a profit margin of only 5% to 7% before marketing expenses, leaving Ms Ho with little or no profit. He said that he and Mr Mazzocchi would explore with her over the coming weeks and in Basel the things that they had to prioritise.

28.  The correspondence prior to the March Meeting (as defined below) does not show any disagreement on the part of Ms Ho with the requests that she provide her proposed marketing plans, and other requested information, to Jacob & Co, or any suggestion that she was not obliged to consult Jacob & Co regarding such plans.

B5.  The March Meeting

29.  On 23^rd March 2017, Mr Mazzocchi and Mr Lam met Ms Ho at “Baselworld”, an international watch exhibition in Geneva, Switzerland (“theMarchMeeting”). It is at this meeting that Golden Miles says that the Alleged Oral Agreement was reached, to the effect that Jacob & Co’s contribution to Golden Miles’ marketing expenses would be fixed at 10% of Golden Miles’ purchases, with 5% being a “marketing contribution”, and 5% being a “bonus”, to apply with retrospective effect to all of Golden Miles’ purchases from 2016 onwards. Furthermore, Golden Miles would not need to provide any receipts or proof in relation to its marketing activities and expenses.

30.  Jacob & Co says that no agreement was reached at the meeting. It says that at most, there was an agreement in principle that Jacob & Co would contribute an amount equivalent to 5% of Golden Miles’ gross purchases towards Golden Miles’ marketing expenses, but conditional on receiving receipts for all marketing expenses from Golden Miles. There was no agreement for a further 5% bonus – Ms Ho asked for it and threatened not to deal with the sale of the “Billionaire” watch (the most expensive watch created by Jacob & Co to date) but Mr Mazzocchi said that he would only discuss bonus payments conditional upon an annual sales target and provision of a copy of the Prince Jewellery agreement.

B6.  Correspondence between the parties after the March Meeting

31.  On 10^th April 2017, Mr Lam emailed Ms Ho with the latest account statement. This showed that Golden Miles had made purchases in 2016 totaling US$2,983,875, and the first quarter of 2017 totaling CHF2,098,292. The statement also showed a “marketing contribution” of US$149,195 and CHF104,915, being 5% of the aforesaid amounts of purchases. Mr Lam’s email further attached two credit notes, one for “Year 2016 Marketing Contribution” of CHF149,195,[2] and the other for “Quarter 1 2017 Marketing Contribution” of CHF104,915. The email stated that the credit could be used to offset some of the amount outstanding from Golden Miles to Jacob & Co.

32.  On 21^st April 2017, Vicky sent an email to Ms Oun inquiring whether Jacob & Co would be interested in participating in the “8^th CHINA RENDEZ-VOUS” exhibition (“the China Rendezvous Event”). On 23^rd April 2017, Vicky chased Ms Oun for Jacob & Co’s decision regarding the event.

33.  On 24^th April 2017, Ms Oun replied to Vicky, asking for more details of the event, and concluding with “Basically I need know: “How much and for what?” Thank you for sending more info.”

34.  On 25^th April 2017, Vicky sent further information about the China Rendezvous Event to Ms Oun, and asked for her response. Ms Oun replied that Jacob & Co lacked the resources for the event. Taking the events slightly out of order at this point, it is convenient to mention further attempts by Golden Miles to persuade Jacob & Co to join the China Rendezvous Event.

34.1  On 4^th May 2017, Vicky emailed Ms Oun, stating that Ms Ho would suggest that the managing director of the China Rendezvous Event should provide Golden Miles with a one year contract. Therefore, each of Golden Miles and Jacob & Co should pay RMB2.4m to join the China Rendezvous Event that year. On 9^th May 2017, Ms Oun replied that whilst Jacob & Co understood that the China Rendezvous Event would provide visibility, Jacob & Co’s budget was limited, and the preference was to allocate this towards a Jacob & Co event in November.

34.2  On 21^st July 2017, Ms Ho tried again. In her email to Mr Mazzocchi of that date, she said, inter alia, that Mr Mazzocchi had not replied as to whether Jacob & Co would proceed with the China Rendezvous Event. Mr Mazzocchi replied on 26^th July 2017, pointing out that Golden Miles had been told as early as 4^th May 2017 that it should not participate in the China Rendezvous Event, and then reiterated once again that Golden Miles should not participate in the event.

35.  On 29^th April 2017, Vicky emailed Mr Lam with Ms Ho’s reply to an earlier email of his (which email was not available at trial). Parts of Vicky’s email were in purple and constituted Ms Ho’s reply, although from the contents, it appears that some of the writing in black was also something emanating from Golden Miles’ side. The relevant part of the email read as follows.

“2) [in purple:] About the contract

[in black:] With regard to the approval and budget, Winnie will defer to content of the contract. We are afraid that you may have misunderstand that we would like to explain more:

[in black:] We agreed you to pay 5% of what we buy before, just based on a special situation: We successfully seek cooperation with the Prince Jewellery and they have found some Super VIP to boost our sales, therefore we could buy USD10,000,000 from Swiss Jacob & Co. However, we don’t believe that the USD10,000,000 will be a long-term quantity of sale if we don’t spend enough money in marketing promotion.

[in purple:] The 5% payment is not a long term decision.

[in black:] All decisions will be based on Contract Compliance. We would like to remind you that in the content of our contract, We promised to buy USD1,800,000 from Swiss Jacob & Co, and you shall give 50% of our expense. Please feel free to contact us if you want a copy of the contract.”

36.  Based on either the colour or the contents, it is apparent that all the above contents came from Golden Miles’ side, and it was not suggested otherwise at trial.

37.  On 1^st May 2017, Mr Lam replied to the email, adding his comments in green.

37.1  In response to Ms Ho’s point that “The 5% payment is not a long term decision”, Mr Lam said “Yes, Please TELL them as we discussed in the other email. Tell them you need them HQ to spend more. Additional International Marketing Budget.”

37.2  In response to Ms Ho’s point that “We promised to buy USD 1,800,000, and you shall give 50% of our expense”, Mr Lam said “This is not fully correct. In the contract, it says, you will spend up to 10% of your Net Profit and JCo will re-imburse you 50%, but since from Day 1, your Company had not informed us of the costing and in most cases, you went ahead without HQ Swiss endorsement “agreement”.

By International Standard, your Company need to write to us, explain the Projects and Cost involved, and let us REPLY to you, Yes or No.

This did not happen for all projects already done (except the one now in discussion China Rendezvous)

That is why in Basel, we agreed that to “solve” this problem, we will just both STICK to the International Marketing LAW, meaning, Country Marketing Budget will be 10% of PURCHASES, and both sides will be responsible for half (50/50)…”

38.  On the same day, Mr Lam sent another email to Ms Ho and Nicola, attaching a statement of account.

38.1  He said that the parties needed to “close” a few matters. He then listed three matters. The first two were “Marketing credit we owe you, 2016” and “Marketing credit we owe you, Jan Feb March 2017…so as to make easy deduction for your Invoices already due.”

38.2  He then set out a calculation of the amount owed by Golden Miles (less the “marketing” amounts), concluding “Nett to pay transfer to HQ ===> [US$]430,420 please, as it is over [due].”

38.3  He continued “We are strictly audited by the Big 4 Audit Firm, PWC, Price Waterhouse Coopers Switzerland. Our CFO Mr Gomis have checked, and they do not allow us to automatically grant any BONUS before the Year-End Financial results. So for now, you should only deduct the Marketing contribution from us.” Then, “Separately, Mr Mazzocchi, will confirm to you in separate mail, your Bonus upon Target reached.”

39.  On 5^th May 2017, Mr Lam emailed Ms Ho and Nicola, stating “The purpose of this note is to CLOSE 2016 and 3 Months Jan-March 2017…”.

39.1  He set out a number of invoices due for March 2017 and April 2017 and deducted two figures labelled as “Mkt’G 2016” and “Mkt’G Q1/17” of 149,195 and 104,915 respectively.

39.2  He went on to say that “Our Finance Head Mr Caquim is copied here. He has checked with our Swiss Auditors, and as advised previously. Bonus are not allowed to be deducted till at end of the Year.”

40.  On 8^th May 2017, Ms Ho sent various calculations of figures by WhatsApp to Mr Lam and asked whether he agreed with them. The calculations included the following.

40.1  There were figures for purchases for 2016, the first quarter of 2017 and a “[contract] default payment” of US$100,000, the total of which came to US$5,337,252.00. There were then two deductions of 5% of this amount (US$266,862.60), the first labelled “marketing contribution – 5%” and the second labelled “BONUS – 5%”.

40.2  There were figures for a “diamond watch”, totaling US$1,800,000 (presumably the Billionaire). There were then two deductions of 5% of this amount (US$90,000), the first labelled “marketing contribution – 5%” and the second labelled “BONUS – 5%”.

40.3  There were then figures regarding the second quarter of 2017, for which no deductions were made.

41.  Shortly thereafter, Mr Lam replied, stating that he would have a meeting with head office at 3pm, but that as he had said a long time ago, bonus could not be deducted in advance. Otherwise, the figures were basically the same as Jacob & Co’s.

42.  Later that day, Mr Lam emailed Ms Ho and Nicola, saying that there were some small differences between the parties’ figures, which could be due to bank charges. He then said:

“Please NOTE that Bonus of any form cannot be deducted in advance, this is not allowed by our [Auditor] and our Finance Chief.

Also note, that Bonus if applicable, is only for 2017.

Nobody mentioned about 2016 in Basel Fair meeting (there were 3 of us in the room and we were talking about 2017)

4/ Total 2016 and Q1 2017 Marketing Contribution is $266,885 (you showed $266,862)

**

(We note that there is also 5% Marketing for Billionaire = $215,000 which you may use it, preferably at the last deduction)

…

Please wire remit payment

- Regular Normal Watches $481,530 less Marketing $266,885 >>> $214,645

- Billionaire >>>>>>>>>>>>>>>>>>>>>>>>>>>>>> $750,000

Dear Winnie,

These 5 papers were done according to YOUR format, and 99% same.

The only difference is that Swiss Audit does not allow any advance deduction of Bonus.

Thank You to remit soonest,

…”

43.  In a WhatsApp group comprising Ms Ho, Mr Mazzocchi and Mr Lam (“the WhatsApp Group”), Mr Lam wrote the following message on 9^th May 2017.

“1. Maurizio has generously agreed to support you and agreed to allow u to Deduct

- Marketing 2016

- Marketing 2017 (1^st Quarter…)

Also

He has broken many rules and let u deduct Bonus for 2016 and 2017.

** please note that Bonus is only for this time.

For 2018, we have to correct the Prince discount problem.

Hence for now, 2018 will have no Bonus.

…

For 2018 we will discuss together in Dec because we..you and we, have given too much for Prince.”

44.  Mr Lam then sent an audio message urging Ms Ho to make payment and that this was important as Mr Mazzocchi needed money that week. He said that Ms Ho could deduct the marketing, but not the bonus until the next week or a few weeks later. If she deducted it all then Mr Mazzocchi would not have any money coming in, and he was really struggling.

45.  Mr Lam then wrote:

“Dear Winnie

As we need some Money to come into Switzerland,

Please settle March invoices … roughly 481,000 and deduct only the Marketing first.

And

When u pay the April Bills, u can deduct the Bonus…

We need over 200,000 to come in this week.

Thank you to help us :))”

46.  To which Ms Ho responded:[3]

“If it doesn’t work out, let’s terminate the contract with Prince because we don’t have to hide at work. It’s also hard for me.”

47.  Mr Lam then wrote:

“For the Billionaire,

Because it is a big amount, please send over the 750,000 first next week

And

u can deduct slowly the Marketing and the Bonus.”

48.  In response to Ms Ho’s proposal to terminate the contract with Prince Jewellery, Mr Lam said that since they had just started, they should try one year (of working with Prince Jewellery).

49.  Then, Ms Ho wrote:

“Thank you for your email. I am sorry that we can’t accept that there will be no bonus in 2018. As I know, we will sign a three-years contract, I believe that the discount should not be changed during these three years. Moreover, the plain truth is, we have bought 16,000,000USD before, with only 500,000USD expense of marketing promotion. It is my sincere belief that the “bonus” can be counted in the budget of market promotion. I look forward to your earlier reply. Thank you.”

50.  In response, Mr Mazzocchi wrote:

“Hi Winnie, noted please let’s not focus right at this moment on 2018.

But I understand your point and we will finalize 2018 around October November

Is it ok?”

51.  On 10^th May 2017, Ms Ho said:

“Sorry. We would like to sign the contract as soon as all details have been finalised.

We would like to request more budget on the marketing promotions in China. In fact, our investing is less than the other brands.”

52.  Mr Lam replied:

“Dear Winnie

Maurizio agrees that we will also support you for 2018.

Dear Winnie

As long as you are in business agreement with Prince, we will support you.”

53.  On 2^nd June 2017, Ms Ho sent the following in the WhatsApp Group:

“To Lawrence,

The following is the trade loan calculation:

750,000 + 293,475 = 1,043,475 (2 sales invoices)

, Minus ( - 152,195) (season 1, marketing & bonus) = $891,280

For trade loan.

Rgds,

Brands International HK Ltd”

54.  Mr Mazzocchi replied “Thank you” and “Money received. 891’253. Thank you Winnie”.

55.  On 28^th June 2017, Ms Oun sent an email requesting that Ms Ho and Vicky provide a marketing activity report to Jacob & Co covering activities since January 2017, including invoices paid by Golden Miles.

56.  On 10^th July 2017, Ms Ho sent a message in the WhatsApp Group setting out a number of invoices and claiming a marketing contribution and bonus for other invoices.

57.  On 19^th July 2017, Mr Mazzocchi met Ms Ho in Hong Kong. Afterwards, he emailed Ms Ho:

“I wanted to thank you again for your warm reception in Hong Kong during my visit.

I would like to point out important point as discussed in order to improve the efficiency of the collaboration.

1. Please make all requests involving money trough e mails. Watch orders, marketing budget requests etc

2. Please DO NOT start any project without our WRITTEN approval…

3. Please send us a recap as requested few times by Bopha without answers. We can not deduct marketing investments to your balance without proof of spending. The contract states 10% of your net profit which would be divided 50%. Please give us a statement asap.

4. Any Marketing deducted must also be followed by a DEBIT Note

5. Please send us a copy of the ORIGINAL Retail agreement with Prince.

…

7. Please make sure you have our authorization prior to use our logo and brand name for any commercialization…

8. Please duly respect the 30 days of payment after the reception of goods.

…”

58.  On 21^st July 2017, Ms Ho emailed Mr Mazzocchi in response. The points she made included the following.

58.1  Golden Miles would send the watch orders, marketing budget requests etc through email, as they had already been doing.

58.2  Mr Mazzocchi had not replied as to whether Jacob & Co would proceed with the China Rendezvous Event.

58.3  Apart from the China Rendezvous project, Golden Miles would cancel all plans for the next half of the year due to the lack of response from Jacob & Co regarding other projects.

58.4  “Also, we would like to know what you mean by 10% of your net profit which would be divided 50% that you have mentioned in the previous email. I believed that we have talked about this in Switzerland back in March. [5%][4] is the marketing fee and this has been confirmed and has been following this for 2 seasons already. I do not understand why there is any changes. If you are to make any changes, please explain and perhaps we can make changes start from the next season. If I am misunderstanding anything, please do also explain.”

58.5  Golden Miles could not provide the head office with every single agreement it reached with clients, including the one with Prince Jewellery.

59.  On 23^rd July 2017, Ms Ho sent a WhatsApp message to Mr Mazzocchi and Mr Lam, stating that

“During the watch event in Basil, us 3 have agreed that 5% of the “stock value” of each watch sold will be deducted as the commission from our total buy in also with another 5% for advertising. Today you have came back to me and say that you want us to pay back all those money? After us spending so much for all that in promoting the brand? As businessman or business partners, we don’t just care about money, we also care if we could trust each other’s word.”

60.  On 24^th July 2017, Ms Ho sent an email to Mr Gomis:

“According to our (Winnie, Maurizio, Lawrence) Verbal commitment in March in Basel

-5% As Marketing contribution

Because we have a lot of receipts about publicity cost, failed to provide to you at the first time. Most of the publicity costs are paid by us before they send an official receipt to us (Whether it is HK or China). So when we agreed to the first 5% of the statement deduction, at the moment, Maurizio, Lawrence also agreed!

(We will also give back all the receipts to you as soon as possible)

Also related to 5% commission deduction

In basel meeting, We have mentioned with you, about our cooperation with Prince, was promised to give back 5% as a rebate, then we also agreed.

So now most of your information, we do not pay the invoice which is also deducted from Marketing contribution and commission, please refer to attachments”

61.  Mr Gomis replied that day:

“…

As good business practice all these expenses must be supported by invoices. Accordingly, we will acknowledge the 5% Marketing Contribution as soon as we receive your invoices.

Indeed, as of today despite several emails from our Marketing Manager we still missing them.

After receiving the Marketing report and invoices, your open balance adjusted to $1,144,546.50 as per below recap and attachment:

[calculation showing deduction of 5% for marketing contribution, resulting in amount of US$1,144,546.50 due from Golden Miles]

*Valid upon receipt of all invoices no later than August 15^th

Please remit the balance of $1,144,546.50 by July 28^th in order to fully return the open debt.”

62.  On 25^th July 2017, Ms Ho emailed Mr Gomis:

“related to 5% commission deduction (BONUS)?

In basel meeting (Winnie, Maurizio, Lawrence), We have mentioned with you, about our cooperation with Prince, was promised to give back 5% as a rebate, then we also agreed. Because of your promise, We can complete this contract with Prince. This is also one of the conditions of our contract with Prince. Otherwise, they will not buy The Billionaire. If you can not deduct 5% commission it now, We can try to discuss with Prince, It is possible that they will terminate the contract with us, But you will not be responsible for the financial consequences. And all of the lost of this contract, such as advertising costs, exhibition costs shop renovation for our watchs costs and even return The Billionaire. we will not be responsible.

…”

63.  On 26 July 2017, Mr Gomis replied to say that he was not aware of any “commission deduction” or Golden Miles’ contract with Prince Jewellery, and chased for payment of overdue invoices and provision of Golden Miles’ “Marketing report and related invoices”.

64.  On 26 July 2017, Mr Mazzocchi emailed Ms Ho, replying to her earlier email of 21^st July 2017. The points he made included the following.

64.1  Golden Miles had been told as early as 4^th May 2017 that it should not participate in the China Rendezvous Event. (Mr Mazzocchi then reiterated once again that Golden Miles should not participate in the event.)

64.2  “As our mutual agreement and contract states 10% of net profit shared by both companies, and as this may result in a small promotional budget, even though we never received any figures from you confirming our hypothesis, we would be in agreement to increase Jacob & Co marketing budget 2016/2017 to 10% of net sales divided 50% paid by Golden Miles and 50% by Jacob & Co as long as we have clear visibility and we approve of every expenses which we never received from you. Please provide us with the 10% net profit figures 2016, and YTD 2017.”

64.3  It was not understood why Golden Miles was hiding its agreement with a Jacob & Co retailer.

65.  On 26^th July 2017, Ms Ho emailed Mr Gomis, copying Mr Mazzocchi and Mr Lam, saying:

“About Bonus, We had 2 days for this matter at Basel, Content is also very clearly expression about our cooperation with Prince, was promised to give back 5% as a rebate and 5% marketing contribution, and it is also agreed to buy on behalf of your company, If you still not aware of that, Hope you can enquire to Mr Maurizio and Mr Lawrence, They should be clear about the whole things.

Once again, If you still cannot deduct 5% commission (Bonus) it now, We can try to discuss with Prince, it is possible that they will terminate the contract with us. But we will not be responsible for the financial consequences, And all of the lost of this contract, such as advertising costs, exhibition costs, the shop renovation for our watchs costs and even return the Billionaire, we will not be responsible.

…”

66.  On 31^st July 2017, Ms Ho sent a WhatsApp message to Mr Mazzocchi at 12:06am:

“I would like to confirm on the following as we have agreed on during our phone call. “You” on behalf of Jacob and co has admitted and agreed on the agreement made during my last visit to Baselworld, A deduction from the total sale of each watch; a 5% commission plus another 5% towards marketing will be deducted from the sale of each watch; as this has already been deducted from my last payment. Hence from now on you will not be asking for this money plus the penalty amount you have paid us for to be returned to Jacob and co… Please could I have a written confirmation on the above, as you seem to go back on your word with our agreements made verbally.”

67.  Later that day, Mr Mazzocchi replied:

“Regarding your message that I just saw you were there Winnie we said 5+5 and share the projects and we reimburse on agreed project with receipts of marketing payment. You said You had no margin and we ask you to provide us the contract of Prince so we can study something and that if the turnover is important we said 15 mio if the billionaire is paid we can discuss it was open to al these hypothesis. Nothing more was discussed…”

68.  Separately, on 31^st July 2017, Ms Ho emailed Mr Mazzocchi, in response to an earlier email:

“Your open ended message does not state what you have promised us.

Please if you can just simply admit to what you have promised asked on with the 5% commission alongside with a 5% towards our marketing in Hong Kong. plans the penalty of 100000usd for selling under price. in which this problem would be solved very quickly.

As you and I know, if you have given me an open-ended answer we would not go ahead with Prince. If you still don’t admit to what you have promised, we can simply scrap our contract with prince, however that means the billionaire will need to be returned and refunded, alongside with some other pieces. Lastly, this might cost as a breach of contract, this will need to be taken care of by yourside.”

69.  A few emails later, at 6:02pm, Mr Mazzocchi stated:

“As discussed many times we will recognize 5% mrktg upon receipt of invoice as it is a 50 / 50 investment and for 5% extra upon receipt of your agreement with Prince [Jewellery]. We agree ads discussed on the base we need the documents though for accounting”

70.  Ms Ho did not respond to this email.

71.  On 9^th August 2017, Ms Ho emailed Mr Mazzocchi, saying for the first time that she did not need to ask for permission or authorisation for marketing activities. She said that if he was not happy with attending the China event, she would not force him to participate. However she had already paid for the event. She also asserted the right to use Jacob & Co’s intellectual property without permission or authorisation in marketing activities. She also said:

“…

4. The 10% is using from my sales amount which we have already agreed, if you would like to share then 10% should not be set. Our relationship is partnership so I have rights to do marketing activities, finding new customer and employ potential employee which stated by the contract….”

72.  On the same day, Ms Oun emailed Ms Ho, with a reminder: “We need visibility before going ahead on any project”.

73.  On 10^th August 2017, Mr Mazzocchi replied to Ms Ho’s email of 9^th August 2017, with various complaints about Ms Ho’s way of doing business. Amongst other things, he said:

“…

4. The 10% marketing expenditure on your sales were discussed and agreed only in case of joint planned and projected agreed and prepared together. You are acting solo, not asking and then pretend for us to pay. Again unacceptable practice and on top of it without showing us proof of payment. No partnership work this way…”

74.  On 10^th August 2017, Ms Ho emailed Ms Oun. One of the matters addressed was Ms Oun’s email of 28^th June 2017, in which Ms Oun had asked for a marketing activity report regarding 2017 with corresponding invoices. Ms Ho said:

“For the marketing report, we are preparing it which includes information what have been done from 2016 to 2017. We will send it to you asap. Moreover, Lawrence, Maurizio and Winnie have done a meeting in March which about the 5% marketing fee has been confirmed and done, this 5% is going to be used from the sales amount. In the meantime, less communication due to focusing on doing marketing fees for developing agent marketing so the marketing report has not yet been sent actively. However, I will send it to you asap.”

75.  On 15^th August 2017, Mr Gomis emailed Ms Ho, requesting that she remit an overdue balance of US$953,371.50 within the next 5 business days. It further noted that as no report had been sent to Jacob & Co despite many emails requesting justification for Golden Miles’ expenses, no marketing deductions had been applied to the regular invoices.

76.  On 18^th August 2017, Ms Ho emailed Mr Mazzocchi, saying that according to her calculation, she did not owe any money. Also, she had sent the marketing report on 15^th August 2017.

77.  Prior to September 2017, which is when Jacob & Co says that it terminated the Agreement, Golden Miles did not provide Jacob & Co with a copy of the agreement said to have been concluded with Prince Jewellery or other retailers in the Territory.

B7.  The marketing reports

78.  Golden Miles sent three versions of a marketing report, with a number of invoices, to Jacob & Co in August 2017.

79.  On 15^th August 2017, Ms Ho emailed Ms Oun with the first version, saying that some invoices were missing as she was still waiting for them, but would provide them “asap”. The report gave a figure of US$1,824,965 as the total of the marketing fees.

80.  On 17^th August 2017, Ms Ho emailed Ms Oun with the second version, saying that there were some updates, and that she would “keep sending” invoices once she got them. The report gave a figure of US$1,850,975 as the total of the marketing fees.

81.  Ms Oun replied on 23^rd August saying that she did not know how to match the attachments (presumably to the contents of the report), and she also asked for an explanation of the correspondence, and what was meant by “physical resources” in the report.

82.  On 24^th August 2017, Ms Ho emailed Ms Oun with the third version of the marketing report (with attachments including invoices) to Jacob & Co (“theMarketing Report”). The covering email said that there were new attachments, and she believed that this method would be easier and more clear. She noted Ms Oun’s comments that some invoices were missing, some of them were not understandable, and some were not sufficient and asked which were in question. The report gave a figure of US$1,712,520 as the total of the marketing fees.

83.  On 25^th August 2017, Ms Oun emailed Ms Ho, noting that the total amount in the latest report (US$1,712,520) was different from the total amount in the earlier report of US$1,824,965, and saying that she was going to check the latest report.

B8.  The August Meeting

84.  On 28^th August 2017, there was a meeting in Geneva, Switzerland (“the August Meeting”). The attendees of this meeting included Ms Ho, Mr Mazzocchi, Mr Arabo and Mr Terry Yeung.

85.  At the meeting, Mr Arabo produced to Ms Ho a statement of Golden Miles’ account as at 28^th August 2017. This showed an open balance due from Golden Miles in the amount of US$470,198.15 (the Disputed Amount), after taking into account a 5% “marketing” deduction of US$572,773.35.

86.  There was some discussion between the parties as to whether a deduction of 7% rather than 5% would be given to Golden Miles for marketing expenses starting from September 2017.

B9.  Demands for the Disputed Amount

87.  On 29^th August 2017, Mr Gomis emailed Ms Ho, asking for payment of the Disputed Amount. The email (“the 29.08.2017 Email”) read as follows.

“Dear Mrs. Ho,

After discussion with Mr. Jacob, both watches will be shipped to you. My colleagues will provide you with the shipping documents as soon as possible.

However, please wire USD 540'198.15 when you return:

- USD 470'198.15 with regards to the open balance as per the statement discussed and approved yesterday with Mr. Jacob

- USD 70'000 regarding the open balance of the Solar timepiece sn : YANG46

Thank you for your confirmation.

Best regards”

88.  On 31^st August 2017, Ms Ho wrote to Mr Arabo denying that Golden Miles owed any money to Jacob & Co. She said that for Jacob & Co to only give a 5% marketing fee, “there is no respect shows of the contract (50/50 shared with no maximum stated) and the meeting in March (5% Marketing fee and 5% Bonus)”.

89.  On 6^th September 2017, Mr Mazzocchi emailed Ms Ho, saying that Golden Miles’ overdue balance stood at US$470,198.15 and asking for immediate settlement.

90.  On 7^th September 2017, Ms Ho emailed Mr Mazzocchi stating that she did not accept the Disputed Amount was due and owing.

91.  There was then some further correspondence regarding the parties’ dispute as to whether Golden Miles owed the Disputed Amount.

B10. Jacob & Co’s purported termination of the Agreement and the aftermath

92.  By a letter from its solicitors Messrs Deacons dated 29^th September 2017, Jacob & Co sought to terminate the Agreement pursuant to cl.7.2 of the Agreement, on the basis that the Disputed Amount was outstanding as at 28^th August 2017, Jacob & Co had given notice through the 29.08.2017 Email that Golden Miles was to pay this amount, and over thirty days had elapsed since the 29.08.2017 Email (“the 29.09.2017 Termination Letter”).

93.  By a letter from its solicitors Messrs Reed Smith Richards Butler (“RSRB”) dated 16^th October 2017, Golden Miles denied that any sum was due to Jacob & Co by reason of the Alleged Oral Agreement, so that the purported termination of the Agreement was invalid.

94.  By a further letter from RSRB dated 24^th October 2017, Golden Miles sent Jacob & Co a cheque for the Disputed Amount, without prejudice to its right to claim for its return. The writ in these proceedings had been issued earlier that day.

95.  Jacob & Co says that it discovered in November 2017 that in fact, a substantial number of the items in Golden Miles’ marketing reports were false or exaggerated, and amounted to a repudiatory breach of the Agreement.

96.  Jacob & Co further says that it discovered in November 2017 that Golden Miles was about to open a shop in Macau bearing the name “Jacob & Co”, but Jacob & Co had never consented to the opening of the shop.

C.  THE ISSUES

97.  The agreed issues arising for my determination are as follows.

97.1  Does the Agreement contain the implied terms alleged by Jacob & Co as pleaded in paragraph 6 of the Re-Amended Defence and Counterclaim (“RADC”)?

97.2  Did the parties make the Alleged Oral Agreement, or an agreement as pleaded in paragraph 10A of the RADC (to the effect that any promises by Jacob & Co to give Golden Miles a 5% deduction for marketing expenses and 5% for bonus were in exchange for Golden Miles’ promise to supply full and accurate receipts or documentary proof of its marketing activities and expenses)?

97.3  If an agreement was made at the March Meeting, is it void and unenforceable for uncertainty and/or incompleteness?

97.4  Was Jacob & Co entitled to terminate the Agreement under cl.7.2 of the Agreement by issuing the 29.09.2017 Termination Letter (“the Disputed Termination”)?

97.5  If the Disputed Termination was invalid, did it amount to a breach of the Agreement? If so, what should be the appropriate remedies for Golden Miles?

97.6  If the Disputed Termination was valid, what should be the appropriate remedies for Jacob & Co? In particular, is Jacob & Co entitled to the sum of US$572,773.35 deducted by Golden Miles?

97.7  Did Golden Miles act in breach of cll.7.6(c), (d) and/or (f) of the Agreement, involving the opening of a shop in Macau selling the Products without Jacob & Co’s authorisation?

D.  WHETHER ALLEGED ORAL AGREEMENT MADE (OR AN AGREEMENT AS PLEADED IN RADC PARAGRAPH 10A)

98.  I will first deal with one of the issues that took up much of the time at trial, and that is the question of whether the Alleged Oral Agreement was made at the March Meeting.

99.  It can be seen from the figures in the statement discussed at the August Meeting that if Golden Miles establishes that the Alleged Oral Agreement was made, then it would not have owed money to Jacob & Co (as Golden Miles would have been entitled to a further US$572,773.35 as a 5% bonus), whereas if Jacob & Co establishes that no oral agreement was made (whether as regards marketing or bonus), then Golden Miles would have owed both the Disputed Amount and also the US$572,773.35 which had been deducted from the originally outstanding amount as 5% of that outstanding amount. This is of course relevant to whether Jacob & Co was right in asserting that Golden Miles owed money to it at the time of the 29.08.2017 Email.

D1.  The parties’ cases

100.  Golden Miles pleads that the terms of the Alleged Oral Agreement were as follows.

100.1  Notwithstanding Clause 3.1(d) of the Agreement, Jacob & Co’s total contribution to Golden Miles’ marketing expenses would be fixed at 10% of Golden Miles’ purchases.

100.2  Of this 10%, 5% would be labelled as Jacob & Co’s marketing contribution, whilst the other 5% would be labelled as bonus.

100.3  This arrangement would be implemented immediately, and apply retrospectively to all of Golden Miles’ purchases since 2016.

100.4  The first deduction would be applied to all purchases made in 2016 up to the first quarter of 2017, and thereafter the deduction would occur after each quarter.

100.5  No details or furnishing of receipts or documentary proof in relation to its marketing activities and expenses were required.

101.  Jacob & Co’s pleaded case is as follows.

101.1  As regards the 5% marketing expenses, it says that at most, Mr Mazzocchi and Ms Ho agreed in principle to an arrangement whereby Jacob & Co would allocate an amount equivalent to 5% of Golden Miles’ gross purchases from Jacob & Co as its contribution to the marketing expenses, and Golden Miles would contribute the same amount (5% of Golden Miles’ gross purchases) to the marketing expenses. However, Jacob & Co says that this arrangement was conditional upon receiving receipts for all marketing expenses from Golden Miles.

101.2  As regards the 5% bonus, Jacob & Co says that there was no agreement at all. Ms Ho said that she proposed to enter into an agreement with Prince Jewellery for the sale of Jacob & Co’s watches and that the profit margins under the agreement would be low, so she asked for financial support from Jacob & Co in the form of bonus payments. She further threatened that if Jacob & Co did not agree to bonus payments, she would not continue to deal with the sale of the “Billionaire” watch. Mr Mazzocchi’s response was that he would only be prepared to discuss bonus payments conditional upon (1) an annual sales target to be agreed and (2) provision of a copy of the Prince Jewellery agreement to Jacob & Co.

D2.  Relevant principles in assessing credibility

102.  The credibility of the witnesses’ evidence is of course important in assessing whether the Alleged Oral Agreement was made.

103.  I first remind myself that it is Golden Miles who bears the burden of proving that the Alleged Oral Agreement was made, containing the terms alleged by it. It is not for Jacob & Co to disprove it.

104.  In assessing the witnesses’ evidence, I have had regard to the principles summarised in Hui Cheung Fai v Daiwa Development Ltd, unreported, HCA 1734/2009, 8 April 2014 at [77] to [83] (DHCJ Eugene Fung SC). In particular:

104.1  contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

104.2  in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

104.3  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

104.4  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

104.5  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

105.  I have also had regard to the summary of relevant principles made by HH Judge Simon Barker QC in Northampton Borough Council v Cardoza and others [2019] BCC 582:

“36. As to the considerations applicable to evaluating evidence, a useful starting point is Goff J’s (as he then was) observation as to resolving conflicts of evidence in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 LL Rep 1 at p.57:

‘… Where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth’.

37. Factors relevant to the evaluation of a witness’s evidence were identified by Lewison J (as he then was) in Painter v Hutchinson [2007] EWHC 758 (Ch) at [3] when addressing the unsatisfactory nature of the defendant’s approach to giving evidence. These included: evasive and argumentative answers, tangential speeches avoiding the question, blaming legal advisers for pleading, disclosure and evidence shortcomings, self-contradiction, internal inconsistency, shifting case, new evidence, and selective disclosure. This was not intended to be an exhaustive list, but it is important and very helpful.

38. A useful recent reminder or guidance on the approach to the evidence of factual witnesses, and expanding on the guidance given by Goff J in The Ocean Frost, was given by Leggatt J (as he then was) in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm). After noting that human memory is fallible and that the process of litigation and preparing for trial tends to interfere further with the reliability of human memory, particularly where a lawyer has had a hand in drafting a witness’s evidence and the witness’s memory has been refreshed by reading documents, Leggatt J concluded that the best approach for a judge to adopt at the trial of a commercial case is to base factual findings on documentary evidence and known or probable facts and the inferences to be drawn therefrom. Witness evidence, written and oral, is not without purpose; but, its principal uses are to subject the documentary record to scrutiny and to evaluate the witness’s motivations, personality and working practices.[5]

39. In similar vein, in the recent case of Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch) reference was made to an article written by Bingham J (as he then was) entitled “The Judge as Juror: The Judicial Determination of Factual Issues” published in [1985] 38 Current Legal Problems 1-27. Bingham J considered the approach to deciding upon the reliability of a witness’s evidence and regarded the following to be helpful indicators of where the truth lies: the consistency of the witness’s evidence with what is agreed, or clearly shown by other evidence, to have occurred; the internal consistency of a witness’s evidence; and, the consistency of a witness’s evidence with what (s)he has said or deposed on other occasions. Bingham J considered that the credit of a witness in matters not germane to the litigation was of less assistance, and that the demeanour of a witness was on the whole not a reliable pointer to a witness’s honesty.”

106.  I have further borne in mind the reminder of K Yeung J in Siao Miu Hua v Wu Ching Kuen[2024] HKCFI 232 at [84] that:

“It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie”.

D3.  Alleged Oral Agreement not established

107.  Having considered all of the evidence, I do not accept that the Alleged Oral Agreement was made as claimed.

D3.1  How the March Meeting and Alleged Oral Agreement supposedly came about

108.  Golden Miles’ pleaded case was that after the Agreement was executed, the parties disagreed on whether Golden Miles was obliged to seek Jacob & Co’s prior approval before conducting marketing activities, and as a result, the March Meeting took place and the Alleged Oral Agreement was made.[6]

109.  However, this is not reflected by the correspondence. As will have been seen above, from about November 2016 to February 2017, there were various requests and chasers from Jacob & Co’s side to Ms Ho, asking for details of marketing plans and details of expenses planned or incurred, and Ms Ho did not suggest that she was not obliged to provide such information. On the contrary, she emailed Mr Lam or Ms Oun with marketing ideas, details of publicity already conducted or to be conducted, and also requested Ms Oun’s input regarding various marketing ideas. It was not the case that at the time, there was a disagreement about whether Golden Miles had to seek approval for marketing, such as to trigger the March Meeting or Alleged Oral Agreement.

110.  The correspondence after the March Meeting also does not suggest that any disagreement over the need to seek approval for marketing activities was the catalyst for the March Meeting and the making of the Alleged Oral Agreement. Instead, Jacob & Co continued to ask for such information, and Golden Miles continued to provide it, and to ask for approval, in a similar fashion to that prior to the March Meeting.

D3.2  No agreement to dispense with need for production of receipts

111.  In the correspondence after the March Meeting, Jacob & Co continued to ask for information about marketing plans, and Golden Miles continued to respond. Indeed, it was Vicky who emailed Ms Oun on 21^st April 2017 asking whether Jacob & Co would be interested in participating in the China Rendezvous Event. Ms Oun replied on 24^th April 2017 asking for more information, and Vicky obliged on 25^th April 2017 and asked for her response.

112.  Later on, on 28^th June 2017, Ms Oun asked for a marketing activity report covering activities since January 2017; it will be recalled that Golden Miles sent three versions of such a report in August 2017.

113.  Ms Ho’s message of 10^th July 2017 in the WhatsApp Group set out a number of invoices and claimed a marketing contribution and bonus for other invoices.

114.  On 21^st July 2017, Ms Ho emailed Mr Mazzocchi, saying that he had not replied as to whether Jacob & Co would proceed with the China Rendezvous Event and complaining about Jacob & Co’s lack of response about other projects. Notably, in this email, (1) Ms Ho was seeking to respond to Mr Mazzocchi’s complaint about the failure to provide proof of spending, and (2) Ms Ho referred to discussions at the March Meeting, yet she did not suggest that there had been any discussion (let alone agreement) at the March Meeting that receipts were to be dispensed with.

115.  On 24^th July 2017, whilst Ms Ho on the one hand referred to a 5% marketing contribution and a 5% “commission deduction”, at the same time, she said that “We will also give back all the receipts to you as soon as possible.”  Mr Gomis replied the same day, reiterating that expenses had to be supported by invoices, and saying that the 5% marketing contribution would be acknowledged “as soon as we receive your invoices”. Ms Ho did not contradict this when replying.

116.  It was only in Ms Ho’s email of 9^th August 2017 to Mr Mazzocchi that Ms Ho asserted for the first time that she did not need permission for, or authorisation of, marketing activities.

117.  All of this critically undermines the claim that it was agreed at the March Meeting that the parties agreed that receipts and documentary proof of marketing activities and expenses were to be dispensed with.

D3.3  Correspondence shows evolving stance

118.  The correspondence after the March Meeting shows that the parties did not arrive at a concluded agreement on the pleaded terms alleged by Golden Miles. Whilst there were references to a 5% marketing contribution and, later on, a 5% bonus (which was also sometimes described as a “commission”), what the correspondence shows is that Golden Miles sought to extract further benefits or concessions from Jacob & Co as time went on, rather than that there was any concluded agreement reached at the March Meeting.

119.  Golden Miles relied heavily on the email of 10^th April 2017 from Mr Lam to Ms Ho with the latest account statement. Mr Lam referred to the raising of a credit, being Jacob & Co’s “marketing contribution”, and attached credit notes for “Year 2016 Marketing Contribution” and “Quarter 1 2017 Marketing Contribution”, being 5% of the amounts of the purchases made in those periods. This is consistent with there having been an agreement between the parties for a 5% marketing contribution; but it is equally consistent with there having merely been an agreement in principle about such a contribution, with receipts to be provided for Golden Miles’ marketing expenses.

120.  In cross-examination, Mr Gomis (Jacob & Co’s Chief Finance Officer at the time) explained that it was a common practice for Jacob & Co to have posted such credit notes into the company’s system on a temporary or provisional basis, so as to give the relevant distributor a projection of what his financial situation would be, and on the assumption that he would provide all necessary documents (such as receipts) to Jacob & Co to enable the credits to be confirmed; once the documents had been provided, the posting would be confirmed in the system. He also explained that the credit notes would have been issued in accordance with Jacob & Co’s usual arrangement with distributors that an amount equal to 10% of total purchases had to be spent on marketing, with Jacob & Co and distributor each contributing 5%.[7] I accept this evidence – Mr Gomis was extensively cross-examined about this email but was not shaken in his explanation as to how the company system operated with regard to such credit notes and provisional postings. He had no particular reason to be untruthful about the matter – he was not said to have been personally involved in making any oral agreement, and in any event he no longer worked for Jacob & Co by the time of the trial. Leading counsel for Golden Miles, Mr Rimsky Yuen SC (appearing with Mr Thomas Wong) submitted that Mr Gomis’ team would surely have ascertained what Ms Ho owed and what credit was due to her before issuing the credit notes, and they would therefore have learnt that the Alleged Oral Agreement had been made. However, it is to be remembered that Jacob & Co’s case is not that no agreement of any sort was made, but that there was an agreement in principle to give a marketing contribution of 5% of gross purchases provided that Golden Miles in turn provided receipts for expenses. The issue of credit notes is entirely explicable either on the basis of such an arrangement, or on the basis that this was the usual marketing contribution arrangement with distributors.

121.  Mr Lam was also cross-examined about this email. His evidence was that he did not pay much attention to how the figures had been calculated and he simply passed on the documents which had been generated by Jacob & Co’s head office; he did not have a duty to ascertain the amounts due from or to Ms Ho; and his task was to relay collect payment from Ms Ho. The essence of Mr Lam’s explanations was that in collecting payment, he did not necessarily collect specific sums of money referable to a particular invoice; Ms Ho made ongoing and partial payments for various invoices and the head office would be responsible for calculating the resulting balance of the parties’ accounts. Mr Yuen submitted that when Mr Lam sent out his email of 10^th April 2017 together with the credit notes, he must have known that the credit had been calculated on the basis of 5% of Golden Miles’ gross purchases and that this was different from what had been agreed in the Agreement; it was said that this supported the existence of the Alleged Oral Agreement. However, given the limited scope of Mr Lam’s role, and his evidence that he was not involved in the negotiation of contractual terms with Golden Miles, it seems to me to be entirely believable that he did not particularly apply his mind to the significance, if any, of the figures in the credit notes and repeated in his email of 10^th April 2017, and I accept Mr Lam’s evidence in this regard.[8]

122.  There was then Vicky’s email of 29^th April 2017 setting out Ms Ho’s reply to an earlier email of Mr Lam. Ms Ho referred to her side’s agreement “to pay 5% of what we buy before, just based on a special situation”, and stated that “The 5% payment is not a long term decision.” She went on to say that under the Agreement, Golden Miles has promised to buy US$1.8m worth of products from Jacob & Co, and Jacob & Co was to “give 50% of our expense” (rather than 5% of gross purchases). These contradict the claim that the parties had reached any definitive agreement that Jacob & Co’s contribution to marketing expenses had been changed permanently to 5% of Golden Miles’ gross purchases. Furthermore, the email did not make any reference to the other 5% “bonus” which had supposedly been agreed at the March Meeting.

123.  Mr Lam’s reply to this email was on 1^st May 2017. In response to Ms Ho’s comment that the 5% payment was “not a long term decision”, Mr Lam said “Yes, Please TELL them as we discussed in the other email. Tell them you need them HQ to spend more.” This again indicates that the parties did not consider that Jacob & Co had definitely agreed to contribute 5% of gross purchases on a permanent basis.

124.  Mr Yuen submitted that the later part of this email supported Golden Miles’ case of an oral agreement, in that Mr Lam complained of Golden Miles’ failure to provide advance information regarding costing of proposed marketing projects and to seek Jacob & Co’s endorsement before proceeding, and then went on to say “That is why in Basel, we agreed that to “solve” this problem, we will just both STICK to the International Marketing Law, meaning, Country Marketing Budget will be 10% of PURCHASES, and both sides will be responsible for half”. However, Mr Lam also went on to emphasise that he was willing to talk to Vicky to explain to her what was meant by “International Standard Marketing”. Mr Lam explained in cross-examination that this later part of the email was a reference to his repeated explanations at the March Meeting and afterwards to Ms Ho and her team that it was necessary for them to provide advance information and documents regarding their proposed marketing plans, in line with (what he considered to be) international practice. I accept this explanation. It was apparent from Mr Lam’s written emails and his spoken English in his evidence that he did not always articulate his points with precision, so that it was necessary to consider his statements in context, rather than to construe the words in his emails in the way that one might do with a statute.

125.  There was then Mr Lam’s email to Ms Ho of 1^st May 2017, saying that Mr Gomis had checked, but Jacob & Co’s auditors would not allow any automatic grant of bonus before year-end results; separately, Mr Mazzocchi would confirm “your Bonus upon Target reached”. This suggested that there had not been any concluded agreement about a bonus, with checks needing to be carried out first. It also is consistent with Jacob & Co’s case that any bonus would have been conditional upon reaching an annual sales target which had yet to be agreed,[9] rather than Golden Miles’ case that the parties had already decided that a bonus of 5% of gross purchases would be granted. Ms Ho did not reply to dispute anything in the email or to suggest that a concluded agreement had already been reached regarding the bonus irrespective of what Jacob & Co’s auditors’ views might have been about the agreement.

126.  Mr Yuen put to Mr Gomis that the email meant that the bonus had been agreed, but would not be credited until the end of the financial year. Mr Gomis disagreed, explaining that if the bonus had indeed been agreed, then from a financial point of view, there would not have been any reason why it could not be applied right away. In any event, Mr Yuen’s proposition would not assist Golden Miles’ case: if no bonus could be credited until the end of the financial year, then it would not be a sum due to Golden Miles until then, so that Golden Miles would have owed money to Jacob & Co at the time of the 29.08.2017 Email.

127.  In the same chain of cross-examination, Mr Gomis further said that if there had been an agreement, he would have required some kind of documentation to support this, to comply with Jacob & Co’s internal policies. Whilst Mr Gomis was not present at the March Meeting and could not therefore testify as to whether the Alleged Oral Agreement was made, the absence of any internal record of the agreement within Jacob & Co, at a time when it is not said that there was any reason for denying the agreement, supports Jacob & Co’s case that no agreement was made.

128.  Mr Lam wrote a further email of 8^th May 2017 reiterating that no bonus could be deducted in advance. He also said “Also note, that Bonus if applicable, is only for 2017. Nobody mentioned about 2016 in Basel Fair meeting…”. Ms Ho did not write back to say that (1) the bonus was definitely applicable, not conditional, or (2) the bonus was also for 2016 and also for years beyond 2017.

129.  On the same day, Ms Ho sent various calculations to Mr Lam by WhatsApp and asked whether he agreed with them. The calculations included figures for a 5% deduction for “marketing contribution” and another 5% deduction for “BONUS” for 2016 and the first quarter of 2017. Although invoices for the second quarter of 2017 were set out as well, no deductions were made in respect of those invoices. Mr Lam’s reply by WhatsApp was that “as I said a long time ago, bonus cannot be deducted in advance”. This again indicates that the bonus was being unilaterally applied by Ms Ho.

130.  On 9^th May 2017, Mr Lam sent a message to the WhatsApp Group saying that Mr Mazzocchi had agreed to a deduction for “Marketing 2016”, “Marketing 2017 (1^st Quarter …)” and had “broken many rules” and let Ms Ho deduct “Bonus for 2016 and 2017”. He added “please note that Bonus is only for this time” and that “for now, 2018 will have no Bonus”. The message indicates that the deductions were limited to those periods (rather than for the entire duration of the Agreement). Given the sequence of the correspondence as set out above, it seems that the “bonus” element was gradually pushed by Ms Ho and that after a while, Mr Mazzocchi relented and then allowed Ms Ho to make deductions for it.

131.  There were then messages by Mr Lam urging Ms Ho to make partial payments as Jacob & Co needed money to arrive. Mr Gomis was cross-examined to the effect that Jacob & Co did not have any cash flow issues, but whether or not that was the case, the more important point is that Mr Lam was chasing Ms Ho for payment, saying that Mr Mazzocchi had specially allowed various deductions for limited periods, and Ms Ho’s response was not to say that the agreement had been to have such deductions permanently, but instead, to threaten to terminate her contract with Prince Jewellery. This in turn drew Mr Lam’s attempt to persuade Ms Ho to at least work with Prince Jewellery for a year.

132.  Ms Ho’s response was:

“Thank you for your email. I am sorry that we can’t accept that there will be no bonus in 2018. As I know, we will sign a three-years contract, I believe that the discount should not be changed during these three years. Moreover, the plain truth is, we have bought 16,000,000USD before, with only 500,000USD expense of marketing promotion. It is my sincere belief that the “bonus” can be counted in the budget of market promotion. I look forward to your earlier reply. Thank you.”

133.  Tellingly, again, Ms Ho’s response was not that there had been any oral agreement regarding the bonus, but instead, to push for a bonus for at least the duration of the three-year contract with Prince, on the basis that it could be “counted in the budget” (and not because it had been agreed).

134.  The negotiations back and forth continued, with Mr Mazzocchi pleading with Ms Ho not to focus on 2018 and suggesting that the bonus for 2018 would be finalised in October or November 2017; Ms Ho standing firm; and finally Mr Lam saying on 10^th May 2017 that Mr Mazzocchi had agreed that Jacob & Co would support Golden Miles as long as it was in its agreement with Prince Jewellery. These concessions explain why Jacob & Co allowed Golden Miles to make deductions for the 5% marketing contribution and 5% bonus when Golden Miles made payments.

135.  On 19^th July 2017, Mr Mazzocchi’s email asked for proof of spending and pointed out that the Agreement referred to 10% net profit (the requirement for marketing expenditure), split 50:50 between the parties. Whilst Ms Ho’s response of 21^st July 2017 did refer to an agreement in March, she said that this was for 0.5% (no doubt a typographical error for 5%) as marketing fee, without any mention of a bonus.

136.  On 10^th August 2017, Ms Ho’s email to Ms Oun referred to the March Meeting and claimed that there had been an agreement about a 5% marketing fee, but did not mention any agreement about a further 5% bonus.

137.  It is appropriate to point out at this juncture that Golden Miles’ pleaded case is that the Alleged Oral Agreement was one made at the March Meeting, and not thereafter. It is not entitled to rely on allegations of oral agreements made after the March Meeting as giving rise to a 5% bonus.

D3.4  No agreement as to duration

138.  It was Golden Miles’ own position shortly after the March Meeting that the arrangement for Jacob & Co to contribute 5% of Golden Miles’ gross purchases towards marketing expenses “was not a long term decision”. The duration for which the 5% marketing contribution was to be paid was important. The lack of agreement as to duration contradicts the pleaded term that the deduction was to be made every quarter (ASOC paragraph 5.4) (and the implication that deductions were going to continue throughout the duration of the Agreement).

139.  As regards the 5% bonus, as mentioned, the correspondence shows that the position was an evolving one and Ms Ho applied pressure after the March Meeting to extract additional periods from Mr Mazzocchi for which a bonus could be applied, rather than there having been any agreement as to such periods back in the March Meeting.

140.  The lack of agreement as to the duration of the deductions contradicts the pleaded term that the deduction was to be made every quarter (ASOC paragraph 5.4).

D3.5  No reason for Jacob & Co to give up requests for marketing plans and receipts

141.  At trial, Golden Miles’ position was that it had no obligation under the Agreement to provide details about its marketing plans or to provide receipts of its expenses, relying on cl.2.1(b) of the Agreement; Jacob & Co’s position was that Golden Miles was obliged to provide such information, relying on cl.2.1(k) of the Agreement.

142.  Regardless of the true legal position under the Agreement, at the time of the Alleged Oral Agreement in March 2017, Jacob & Co evidently considered that it was entitled to the information, and continued to ask for it. The correspondence shows that such information was important to Jacob & Co, with Jacob & Co expressing frustration when it was not provided. Under the Alleged Oral Agreement, Jacob & Co would no longer have been entitled to do so.[10] It would have been illogical for Jacob & Co to have given up (what it considered to be) its rights to information which it considered important. It was suggested by Ms Ho in her evidence that Jacob & Co stood to benefit because under the Alleged Oral Agreement, Jacob & Co’s share of marketing expenses would have been capped at 5% of Golden Miles’ purchases, with Golden Miles shouldering any amounts above this. However, there is no evidence to suggest that this would have been more advantageous than the amount which Jacob & Co was originally bound to pay under the Agreement.

143.  Although Golden Miles says that receipts would not have been necessary since, under the Alleged Oral Agreement, Jacob & Co’s marketing contribution would have been based on the amount of gross purchases rather than on the actual expenses spent, this is a bootstraps argument: it presupposes that the Alleged Oral Agreement has been established. In any event, under the Agreement, Jacob & Co would still have needed the receipts to verify that Golden Miles had indeed spent no less than 10% of its net profit on marketing and promotion, as Golden Miles was obliged to do under cl.2.1(h). It is not Golden Miles’ case that this obligation was somehow abrogated by the Alleged Oral Agreement.

144.  Furthermore, I do not agree in the first place with the logic of the argument that fixing Jacob & Co’s marketing contribution obviated the need to provide marketing plans and receipts[11] – it assumes that Jacob & Co had no interest in the information other than for verification of the amount it was to pay, when in fact Jacob & Co was concerned more broadly with monitoring and approving the marketing carried out by its distributors. Again, whilst the extent to which Jacob & Co was entitled under the Agreement to monitor and approve the marketing carried out by this particular distributor might be open to dispute, the point for present purposes is that rightly or wrongly, Jacob & Co was clearly very much concerned throughout its relationship with Golden Miles to monitor and control the latter’s marketing plans, so that the suggestion that it agreed to relinquish (what it thought was) its entitlement to do so does not make sense.

D3.6  Ms Ho’s credibility and reliability

145.  I did not find Ms Ho to be a credible or reliable witness in her evidence as to whether the Alleged Oral Agreement was made as she claimed. I give a few examples as follows.

146.  On 29^th April 2017, Vicky’s email (on Ms Ho’s behalf) to Mr Lam stated that “The 5% payment is not a long term decision.” When it was put to her that this was inconsistent with her claim that the parties had agreed (permanently) to a 5% contribution for marketing, Ms Ho sought to brush it off on the grounds that the email had been written by her staff (Vicky) and she had no idea whether Vicky had misunderstood her meaning. This was one of a number of occasions on which Ms Ho sought to blame her staff for emails written which were inconsistent with Golden Miles’ case.

147.  On 31^st July 2017 she sent a WhatsApp message to Mr Mazzocchi asking for a written confirmation that at the March Meeting, it had been agreed that for each watch sold, Golden Miles would get a deduction of 5% marketing and another 5% commission. Mr Mazzocchi wrote back both by WhatsApp and by email saying that the arrangement was for Golden Miles to provide invoices and a copy of the Prince Jewellery Agreement. Ms Ho did not respond to Mr Mazzocchi’s email to refute this. Her explanation in her witness statement was that she only learned of Mr Mazzocchi’s position after the commencement of proceedings, as Nicola had not read the relevant parts of Mr Mazzocchi’s email to her. This is hardly credible when Ms Ho had expressly asked Mr Mazzocchi to confirm his position – she would surely have asked to understand Mr Mazzocchi’s position clearly and not merely have been satisfied to hear from Nicola that Mr Mazzochi “did mention” a 5% plus 5% arrangement.[12]

148.  Mr Lam sent an email of 8^th May 2017 to Ms Ho, saying that nobody had mentioned anything about a bonus for 2016. When it was put to Ms Ho that she did not respond to complain that the matter had been agreed at the March Meeting, she answered that it was because she did not read her emails. However, whilst Ms Ho might not have personally been composing her emails, it is undeniable that she was communicating with Jacob & Co via email, getting her staff to prepare the emails sent by Golden Miles and reading to her the emails received from Jacob & Co.

149.  Mr Mazzocchi’s message of 9^th May 2017 in the WhatsApp Group asking Ms Ho “please let’s not focus right at this moment on 2018” was put to Ms Ho. She commented that this was Mr Mazzocchi seeking to renege from the Alleged Oral Agreement. When asked why she did not write back at the time complaining about this (and instead wrote about other matters), Ms Ho was evasive and unable to give any sensible answer.

150.  I do not accept the submission that Ms Ho truly believed that the Alleged Oral Agreement had been made, and that this informed her approach to the provision of receipts “out of courtesy”.[13] The correspondence shows that she sought to expand, bit by bit, the scope of the bonus which Jacob & Co was willing to give, culminating in a claim that it had all along been agreed. Furthermore, Ms Ho did respond to Jacob & Co’s requests for invoices, and even sent two corrected versions of the marketing report, never once suggesting that this was only out of “courtesy”. She assured Ms Oun that she would “keep sending” invoices once she had them, which would hardly have been necessary if the report was merely a matter of “courtesy”. She also sought to address Ms Oun’s comments about missing, insufficient or non-comprehensible invoices. I return to this claim of “courtesy” later when I consider the Marketing Report.

151.  I further found some of Ms Ho’s answers regarding the provision of receipts not to be credible, as I set out below. However, I put those matters aside for present purposes, bearing in mind that the unsatisfactory nature of her evidence in that area does not necessarily reflect on her credibility in this.

D3.7  Adverse inference from Mr Mazzocchi’s absence from trial?

152.  Mr Yuen submitted that an adverse inference should be drawn against Jacob & Co by reason of the fact that Mr Mazzocchi was not called to testify at trial. The adverse inference claimed was that the Alleged Oral Agreement was made.

153.  However, as leading counsel for Jacob & Co, Mr Anthony Chan SC (appearing with Mr William Wong) submitted:

153.1  the mere failure of a party to call a witness does not automatically confer an evidential benefit on the opposing party: Tjang Siu Thu v Profield Construction Engineering Ltd & anor [2015] 5 HKC 2 at [33];

153.2  where a plaintiff has not made out his claim to the requisite standard of proof, then no drawing of an adverse inference against the defendant is necessary. The drawing of an adverse inference should not be used as a mechanism to shore up deficiencies in a party’s case which on its own does not come up to proof: cf. Tribune Investment Trust Inc v Soosan Trading Co Ltd [2000] 2 SLR(R) 407 at [50].

154.  In the present case, I do not accept Golden Miles’ evidence that the Alleged Oral Agreement was made. Furthermore, I accept Mr Lam’s evidence that no agreement was made at the March Meeting. The question of drawing an adverse inference does not arise.

D4.  Oral agreement as pleaded in RADC paragraph 10A?

155.  Jacob & Co accepts that there was some (non-binding) agreement in principle at the March Meeting that it would allocate 5% of Golden Miles’ gross purchases as its contribution to marketing expenses, although it says that this was conditional on receiving receipts for all marketing expenses from Golden Miles. It pleaded in the alternative that if there were a binding agreement that it would contribute 10% of Golden Miles’ gross purchases, with 5% as “marketing contribution” and 5% as “bonus”, then this was on the basis that Golden Miles was obliged to provide receipts and documentary proof as to its marketing activities and expenses.

156.  Whilst Jacob & Co continued to chase Golden Miles for provision of receipts and information as to past and planned marketing activities after the March Meeting, just as it had before the March Meeting, it is not clear that at the March Meeting, any direct link between Jacob & Co’s provision of a marketing contribution (or bonus) on the one hand, and Golden Miles’ provision of the receipts and marketing information on the other hand, was agreed. I note that the chasers for the receipts and marketing information were not put on the basis that they were part of the bargain struck at the March Meeting. I further note that in his oral evidence, Mr Lam said that he considered that nothing was achieved at the meeting; it was more of a meeting where the parties updated each other. He did not have the impression that any agreement was reached at the meeting.

157.  Jacob & Co did not call Mr Mazzocchi to give evidence at trial in support of its positive case as to what transpired at the March Meeting. It was not suggested that Jacob & Co were unable to procure him to give evidence; indeed Mr Gomis said that he had been in touch with Mr Mazzocchi until a few months prior to the trial. In the circumstances, I place little weight on his affidavit evidence as to the agreement about the need for the provision of receipts in exchange for Jacob & Co’s contribution to marketing expenses.

158.  I therefore do not find that the agreement as pleaded in RADC paragraph 10A was made.

159.  I should note that whether or not Golden Miles was entitled to retain the 5% marketing contribution and 5% bonus it had claimed, on the basis of the various concessions which were made via (for example) the credit notes or Mr Mazzocchi’s emails, and leaving aside the Alleged Oral Agreement, was not explored in the evidence, and not the subject of submissions. Golden Miles’ pleaded case is that it did not owe any money to Jacob & Co as at the time of the 29.09.2017 Termination Letter because of the Alleged Oral Agreement alone.[14]

E. WHETHER ANY ORAL AGREEMENT MADE VOID FOR UNCERTAINTY

160.  In light of my findings that no oral agreement was made at the March Meeting, this issue does not arise.

F.  WHETHER JACOB & CO ENTITLED TO TERMINATE AGREEMENT BY ISSUE OF 29.09.2017 TERMINATION LETTER

161.  Given my finding that the Alleged Oral Agreement was not made, Golden Miles is not entitled to rely on it to assert that it was not indebted to Jacob & Co. The next question that arises for consideration is whether Jacob & Co was then entitled to terminate the agreement for non-payment of the Disputed Amount.

F1.  Whether 29.08.2017 Email constitutes notification under cl.7.2 of the Agreement

162.  It will be recalled that cl.7.2 the Agreement provided that:

“Either party hereto may terminate this Agreement without prior notice and having immediate effect in the following circumstances:

(a) if the other party does not cure any breach or default within thirty (30) days after written notification thereof;

…”

163.  An option to terminate an agreement is construed in the same manner as any other option, and accordingly any condition must be strictly complied with. See Lewison, The Interpretation of Contracts, 8^th ed., pages 1006-1007. Where the parties have agreed on a specific procedure by which an option is to be exercised, then that procedure must be followed in order for the option to be validly exercised: Bess Fashion Management Co Ltd & anor v Star Play Development Ltd & anor [2002] 1 HKC 709 at [21(1)] (Ma J, as he then was).

164.  In the present case, it is necessary for “written notification” “thereof” to have been given before a party can exercise its right to terminate the Agreement. The question is what “thereof” denotes.

165.  Mr Chan submitted[15] that only the “breach or default” needs to be referred to in any notice under cl.7.2(a), but not the requirement that the breach or default be cured within thirty days, nor any indication of an intention to terminate the Agreement in the event that the breach is not cured.

166.  In my view, on a proper construction of cl.7.2, a notice which a party seeks to rely on for the entitlement to invoke cl.7.2(a) needs to indicate in some way that it is such a notice, whether by express reference to cl.7.2(a), or by requiring that the breach or default complained of be cured within thirty days, or otherwise. Clause 7.2(a) is broad in scope, as it entitles a party to terminate the Agreement in respect of “any” breach; it further entitles the terminating party to carry out the termination, once thirty days have elapsed and the breach remains uncured, without any further notice and with immediate effect. Since “any” breach could potentially lead to termination of the Agreement, it would be highly uncertain if it were not sufficiently indicated that a particular breach is relied upon as a cl.7.2(a) breach – any and all complaints about a failure to achieve strict adherence to the Agreement could potentially constitute notices under cl.7.2(a). For example, if Jacob & Co supplied 1,990 copies of its watches catalogue rather than the 2,000 copies required under cl.3.1(e), and Golden Miles simply complained about the shortfall in writing without requiring ten copies to be provided within thirty days (or otherwise indicating that its complaint was made pursuant to cl.7.2(a)), Mr Chan’s construction would lead to the result that Golden Miles could then terminate the Agreement without further notice a month later. In the absence of clear wording, I do not accept that the parties’ objective intention was that a party’s breach – however minor or easy to cure – would entitle the other party to terminate the Agreement without further notice, thirty days after merely mentioning the breach in writing but without having indicated a potential invocation of cl.7.2(a).

167.  Mr Chan argued that since cl.7.2 enabled termination with “immediate effect” if cl.7.2(a) were satisfied, it would defy the purpose of the clause to require a party to set out in advance an intention to terminate the Agreement.[16] However, the fact that cl.7.2(a) provided for the possibility of curing a breach or default shows that the intention was to allow such curing. If a party were not sufficiently put on notice that a breach or default might be relied upon to terminate the Agreement, it would be deprived of the opportunity to attempt any cure, which would undermine the intention of allowing breaches and defaults to be cured.

168.  Furthermore, unilateral notices served under contractual rights reserved must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate: Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 768G (Lord Steyn).

169.  There is no dispute that in construing the 29.08.2017 Email, an objective approach is to be adopted, and regard should be had to the relevant factual matrix. In other words, the court must place itself in the position of the recipient to see what he would reasonably have understood the document to mean, given the recipient’s knowledge of the contractual terms and relevant circumstances surrounding the document: Bess Fashion Management Co Ltd at [22(3), (4)].

170.  Mr Chan submitted that one of the matters which a reasonable recipient of the email would have had at the forefront of his mind would have been the terms of the Agreement (cf. Mannai Investment Co Ltd at 768B). Ms Ho accepted in cross-examination that she was aware of the provisions in the Agreement concerning payment, and that if Golden Miles did not pay according to the terms of the Agreement, Jacob & Co could use cl.7.2 to terminate the Agreement. Furthermore, the relevant context of the 29.08.2017 Email was the August Meeting on the previous day, at which (it is said) that Mr Arabo told Ms Ho that Golden Miles still owed the Disputed Amount. In cross-examination, Ms Ho acknowledged that the figure referred to in the email of US$470,198.15 was connected to the discussions at the August Meeting and that Mr Gomis was reminding her to pay it immediately. However, at the same time:

170.1  Mr Gomis’ witness statement described the relevant part of the August Meeting, as relayed to him by Mr Mazzocchi and Mr Arabo (neither of whom gave evidence at trial), as that Mr Arabo had agreed to give Golden Miles a deduction of US$572,773.35 for marketing expenses if it paid the open balance of US$470,198.15 immediately and provided supporting documents for expenses allegedly incurred. In other words, the context was that the payment of US$470,198.15 was to be paid more as a quid pro quo for the marketing expenses deduction, rather than as being to remedy a breach of contract;

170.2  Mr Mazzocchi’s affidavit described the relevant part of the August Meeting in the same terms;

170.3  Mr Gomis’ oral evidence was that neither Mr Arabo nor Mr Mazzocchi had discussed the possibility of termination with Ms Ho at the August Meeting. For his own part, in sending the email, Mr Gomis simply wanted Ms Ho to close the open balance;

170.4  the 29.08.2017 Email itself did not suggest that the non-payment of the US$470,198.15 was a breach of the Agreement, or that there would be any particular consequence in the event of non-payment. It started out by stating that two watches were to be shipped to Golden Miles. It then asked for payment of US$540,198.15, comprising the open balance of US$470,198.15 discussed at the August Meeting, and another open balance of US$70,000 for another watch. Ms Ho’s testimony was that the two watches referred to had been ordered by her during the August Meeting, and the sum of US$70,000 was for this order;

170.5  it is common ground that Golden Miles had been ordering watches, and making ongoing partial payments at various times for them, and that Jacob & Co had been making requests for payment from time to time. It is Jacob & Co’s case that Golden Miles had all along not paid amounts due under the Agreement on time.[17] Nevertheless, Jacob & Co continued to do business with Golden Miles.

171.  Taken in context, then, the 29.08.2017 Email indicated that Jacob & Co intended to continue the business relationship rather than to terminate it. On an objective reading, a recipient in the position of Golden Miles would reasonably have understood the request for payment as one of the ongoing requests for payment which Jacob & Co made from time to time. Whilst Ms Ho would no doubt have been generally aware that the Agreement could be terminated for failure to pay in accordance with its terms, termination was not specifically contemplated at the August Meeting or in the 29.08.2017 Email.

172.  In my judgment, the 29.08.2017 Email did not constitute a notification under cl.7.2(a) of the Agreement. Consequently, Jacob & Co was not entitled to terminate the Agreement pursuant to this clause (as it sought to do by the 29.09.2017 Termination Letter).

F2.  Whether Jacob & Co entitled to terminate the Agreement at common law for non-payment of the Disputed Amount

173.  Mr Chan confirmed in closing submissions that Jacob & Co was not seeking to argue that Golden Miles’ failure to pay the Disputed Amount entitled Jacob & Co to treat the Agreement as terminated at common law (as opposed to under cl.7.2 of the Agreement).

F3.  Whether cl.7.2(a) ousts termination at common law for repudiatory breaches

174.  I next turn to consider Golden Miles’ argument that cl.7.2 of the Agreement laid down a comprehensive code for terminating the Agreement, ousting any right that Jacob & Co had to terminate the Agreement at common law for repudiatory breach on grounds coming within the scope of cl.7.2.[18]

175.  Mr Yuen did not dispute that the starting point in construing a termination clause is that there is a presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption. See Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717G-H (Lord Diplock). The rationale, as explained in Tridant Engineering Co Ltd v Mansion House Holdings Ltd, unreported, HCCT 3/1996, 15^th June 2000 at pp.67-68 (DHCJ To), is that the objective of a contractual termination clause is (1) to define particular situations in which a right to terminate will arise and (2) provide for rights and remedies for the determining party which a common law termination would not confer, thus supplementing rather than excluding the common law right of termination, in the absence of express provision to the contrary.

176.  However, Mr Yuen submitted that a termination clause will be held to exclude the right to terminate at common law for grounds coming within the clause, citing Amoco (UK) Exploration Co v British American Offshore Ltd (Comm Court, 16^th November 2001) and Lockland Builders v Rickwood (1995) 46 Con LR 92.

176.1  In Lockland Builders, Russell LJ (with whom Hirst LJ and Rose LJ agreed) held that the termination clause in that case provided machinery for the determination of the very type of dispute that had arisen (complaints regarding the quality of materials and workmanship of the building project), and that therefore the termination clause created the only method for termination of the contract. However, Russell LJ went on (at p.98) to observe that the clause did not exclude the right to terminate for a repudiatory breach. Hirst LJ also stated that the relevant principle was that a contractual termination clause did not preclude termination for repudiatory breach unless the contract itself expressly or impliedly provided that it could only be terminated pursuant to the contractual termination clause, referring to Chitty on Contracts, 27^th ed.

176.2  In Amoco (UK) Exploration Co, what Langley J held at [104] was that circumstances “falling short” of those in the termination clause would not give rise to the right to terminate; in order to justify termination at common law, something “worse” or “not addressed by those [termination] provisions” would be required. Lockland Builders was cited.

177.  All that these authorities do is beg the question of whether cl.7.2(a) of the Agreement in the present case is worded so as to catch all breaches of contract and to exclude the right to terminate at common law for repudiatory breach.

178.  In my judgment, cl.7.2(a) is not so clear as to exclude the right to terminate for a repudiatory breach.

178.1  As a matter of wording, the clause does not seek to cover “all” breaches.

178.2  The most straightforward reading of the clause is that it applies only in respect of a breach for which notice has been given requiring it to be cured; if it is not cured, then the notifying party is entitled to terminate the Agreement without further notice, and no matter how serious or minor the breach may have been. In other words, the clause applies only where a party seeks to avail itself of it by invoking the notice mechanism; it can however apply to breaches great or small. It therefore enables a party to effectively set up a breach of the Agreement, no matter how minor it may be, as one which might potentially entitle it to terminate the Agreement.

178.3  It does not contain any language which seeks to suggest that termination for repudiation is excluded. Nor does any other part of the Agreement provide that this is the effect of cl.7.2(a).

178.4  If I am wrong in my view that the clause applies only in respect of a breach of which notice has been given requiring curing, and cl.7.2(a) can somehow be read so as to apply to “all” breaches, then I would agree with Mr Chan’s submission that it does not apply to breaches which cannot be cured, since it would be meaningless to make provision for curing of a non-curable breach.

179.  In closing submissions, Mr Yuen submitted that the definition of “Rights” in the Agreement indicated that termination was to be confined to the methods provided in the Agreement. That definition provided as follows.

“The sole and exclusive rights of the Distributor to carry on the Business within the Territory for the term as set out in this Agreement unless earlier determined as provided for in this Agreement using the intellectual property of the Products.”

180.  The argument was that the term “as provided for in this Agreement” qualifies “determined”. However, it seems to me that:

180.1  “as provided for in this Agreement” qualifies “the sole and exclusive right of the Distributor to carry on the Business within the Territory”, the intention being that the rights of the Distributor (Golden Miles) are those set out in section 2 under “Distributor’s obligations and rights”; and

180.2  the phrase “for the term as set out in this Agreement unless earlier determined” provides for the duration of such rights.

181.  It should be borne in mind that this definition clause seeks to define “Rights” rather than termination, so that the suggestion that it circumscribes the methods of termination of the Agreement should be approached with reservation.

182.  Even if it could be said that “as provided for in this Agreement” qualifies the word “determined”, this only begs the question of what, exactly, is provided for in the Agreement as regards termination, so that one goes back to the question of what the proper construction of cl.7.2 is, and as explained above, my view is that it does not oust determination at common law for repudiatory breach.

183.  Mr Yuen further referred to BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC) at [1366], where Ramsey J said that “the fact that for a particular breach the contract provided that there should be a period of notice to remedy the breach would indicate that the breach without the notice would not, in itself, amount to a repudiatory breach”. It was submitted that cl.7.2(a) therefore prevented any repudiatory breach from arising unless notice was given in respect of such breach and the defaulting party failed to cure it within thirty days.[19] However, this presupposes that cl.7.2(a) mandates that notice must be given for all breaches, but as I have explained above, this is not the case. At the end of the day, as Ramsey J essentially acknowledged at [1366], it is really a question of construction of the clause in issue in each case as to whether termination for repudiatory breach at common law is excluded.

184.  Mr Yuen also cited SA Christensen, The Construction and Performance of Commercial Contracts, 3^rd ed., at p.141, where the learned authors stated that “Comprehensive provisions for termination that apply to ‘all breaches or defaults’ by a party are likely to be construed by a court as applying in all cases of termination whether under the clause or at law, except termination for repudiation by renunciation.” First of all, cl.7.2(a) refers to “any” breach rather than “all” breaches, and does not purport to be comprehensive – in other words, it gives a party the option of relying on a breach for termination under cl.7.2(a) rather than mandating that all breaches must be dealt with pursuant to cl.7.2(a). Secondly, Christensen acknowledges that even comprehensive provisions for termination may well not exclude termination at common law for repudiatory breach.

185.  I therefore do not consider that cl.7.2(a) ousts the right of the parties to terminate the Agreement for repudiatory breach at common law.

F4.  Whether cl.7.2(a) nevertheless applies to termination at common law for repudiatory breaches so as to require notification and opportunity to cure

186.  Mr Yuen’s alternative argument was that even if cl.7.2(a) does not exclude the common law right to terminate the Agreement, cl.7.2(a) nevertheless applies to a common law termination of the Agreement, such that it is necessary to give thirty days’ notice of an intended termination and the opportunity to the defaulting party to cure it.[20] I do not agree.

186.1  If termination of a contract for repudiatory breach at common law is not excluded by a termination clause, then prima facie, the terminating party can terminate by simply accepting the contract as terminated, which is the mode of termination at common law. Termination of a contract for repudiatory breach does not require the giving of thirty days’ notice.

186.2  In theory, it would be possible for two contracting parties to craft a termination clause providing that even in the case of determination of the contract at common law for repudiatory breach, there is nevertheless a requirement that the intending terminating party should first give notice to the defaulting party, allowing it a period of time to rectify its breach. However, that is not what cl.7.2(a) in the present case provided.

186.3  Mr Yuen cited SA Christensen, The Construction and Performance of Commercial Contracts, 3^rd ed., in support of his argument.

186.3.1  He referred to the observation at p.127 that “If common law rights are not excluded [by a termination clause], a consequential consideration is whether the process for termination in the contract applies equally to the exercise of contractual and common law rights.” This however is no more than an acknowledgment that it is necessary to construe the contract.

186.3.2  Mr Yuen then referred to the observation at p.131 that “A clause that grants a right to terminate ‘in the case of any breach of a term of the contract’ will effectively allow a party to terminate for default in the performance of any term of the contract, irrespective of its classification at law. Usually, this type of clause includes a procedure governing the right to terminate, such as a notice to remedy breach.” (I first digress to note that the first sentence supports the construction of cl.7.2(a) which I have favoured above, namely, that cl.7.2(a) entitles a party to set up any breach of contract – no matter whether the term being breached is a fundamental term, innominate term, or a mere warranty not otherwise entitling termination – as an event entitling termination.) Mr Yuen submitted that the second sentence meant that where a termination clause provided for the giving of notice, then notice would be required irrespective of whether the breach in question was a fundamental breach at common law or merely a breach of an innominate term. However, and as Mr Yuen accepted, whether or not a notice provision applies in the case of a termination for repudiatory breach at common law just comes back to the question of construction of the clause in question. The authority therefore does not take the matter any further.

187.  I therefore do not consider that cl.7.2(a) requires that in the case where a repudiatory breach of contract has taken place, a party must serve notice under cl.7.2(a) requiring curing of the breach before it can accept the breach of contract.

188.  The question of whether Golden Miles was in repudiatory breach of contract, justifying termination by Jacob & Co, therefore arises for consideration. Before I address this question, I first consider the issue of whether there were certain implied terms as claimed by Jacob & Co.

G.  WHETHER AGREEMENT CONTAINS IMPLIED TERMS OF HONESTY AND GOOD FAITH

189.  It is Jacob & Co’s pleaded case in RADC paragraph 6 that the Agreement contained implied terms that (1) the parties would perform their contractual obligations and behave honestly, and (2) the parties would act in good faith towards one another.

190.  Jacob & Co says that Golden Miles was in repudiatory breach of these (and other) terms by submitting fraudulent and exaggerated receipts for expenses. I consider the issue of breach in the next section. In this section, I deal with the issue of whether the terms should be implied into the Agreement.

191.  As Mr Yuen submitted, no general obligation of good faith is implied into contracts; an obligation of good faith exists only where the parties are in some kind of fiduciary relationship, such as that between parties to an insurance contract, partnership contract or employment contract: GDH Ltd v Creditor Co Ltd [2008] 5 HKLRD 895 at [57] (DHCJ To). Mr Chan clarified that his position was not that the Agreement fell into a category of contract where the law would imply the obligation as a legal incident of the relationship between the parties, but that rather, on the facts of the present case, the terms should be implied.

G1.  The applicable legal principles for implying a term into a contract in fact

192.  The requirements for implying a term into a contract as a matter of fact were set out in Kensland Realty v Whale View Investment Ltd (2001) 4 HKCFAR 381 at [59] (Ribeiro PJ), citing BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 AJLR 20 at p.26. The term must:

192.1  be reasonable and equitable;

192.2  be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

192.3  be so obvious that “it goes without saying”;

192.4  be capable of clear expression;

192.5  not contradict any express term of the contract.

193.  Lord Neuberger PSC commented on these requirements in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and anor [2016] AC 742 at [21] as follows.

193.1  The implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract. The question was what notional reasonable people, in the position of the parties at the time at which they were contracting, would have agreed.

193.2  A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term.

193.3  It is questionable whether the first requirement of reasonableness and equitableness will add anything. If a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable.

193.4  Although the five requirements are otherwise cumulative, business necessity and obviousness can be alternatives in the sense that only one of them needs to be satisfied, although in practice it would be a rare case where only one is satisfied.

193.5  If one approaches the issue by reference to the officious bystander, it is vital to formulate the question to be posed by him with the utmost care.

193.6  Necessity for business efficacy involves value judgment. The test is not one of “absolute necessity”. A more helpful way of putting the requirement may be that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.

194.  In Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2, Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed), after referring to Marks and Spencer plc, observed as follows.

“… It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement. ”

G2.  Whether terms should be implied in the present case

195.  Jacob & Co relied on two matters for the implication of the terms it sought: “the circumstances and nature of the business between the parties as stipulated in the terms of the Agreement”, and the matters pleaded in RADC paragraph 3, such as the fact that it was critical for Jacob & Co’s brand that Jacob & Co should lead and coordinate marketing campaigns and sale strategies with its various distributors. As Mr Yuen pointed out, the matters pleaded in RADC paragraph 3 were not said to have been discussed with Golden Miles at the time when the Agreement was entered into. Jacob & Co has not established that they were matters within Golden Miles’ contemplation at that time. It could not be said that a notional reasonable person in the position of Golden Miles would have concluded the Agreement with these matters in mind. It is therefore difficult to see how these matters could support the implication of terms into the Agreement.

196.  This leaves “the circumstances and nature of the business between the parties as stipulated in the terms of the Agreement”.

197.  Insofar as the implied term of good faith is concerned, there is already a provision in cl.2.1(c) of the Agreement that Golden Miles was to act loyally and faithfully towards Jacob & Co in relation to the Business. It is not clear to me what an implied term of good faith would add to this clause. I therefore do not see how it can be said that the implied term is either necessary to give business efficacy to the Agreement, or so obvious that it goes without saying. Insofar as it seeks to go further than cl.2.1(c), it would be inconsistent with the clause. The implied term of good faith therefore cannot meet the requirements for implication of a contractual term.

198.  Insofar as the implied term relating to honesty is concerned, it seems to me that there is also at least a large measure of overlap with cl.2.1(c) of the Agreement. Indeed, Mr Chan indicated that the implied terms had been pleaded as a “belt and braces” measure and did not add materially to the express terms of the Agreement.

199.  Whilst Leggatt LJ in Yam Seng Pte v International Trade Corp Ltd [2013] 1 CLC 662 at [137] appeared to suggest a general principle that all contracts should be understood as requiring honesty in their performance, or that a term should generally be implied to this effect,[21] the weight of subsequent authority is that such a term may either be implied as an incident of certain categories of contract (but this is not Golden Miles’ case), or in particular cases by reason of the context: Chitty on Contracts, 35^th ed., paragraph 2-098.

200.  It does not seem to me that the context of the Agreement requires such an implication. The parties dealt at arms’ length to strike a commercial bargain, and set out their respective rights and obligations in the Agreement. Many of the terms are not obviously compatible with an implied term that the parties “must perform their contractual obligation and behave honestly”.[22] For example, what would it mean for Golden Miles to promote the Products (cl.2.1(a)) “honestly”, or for Jacob & Co to refrain from infringing on Golden Miles’ rights (cl.3.1(a)) “honestly”?

201.  In reality, what Jacob & Co is concerned with is cl.2.1(k) of the Agreement, which provided that Golden Miles was to submit written reports at regular intervals to Jacob & Co, showing levels of sales and outstanding orders, and also any other information relating to the performance of its obligations under the Agreement that Jacob & Co might reasonably require from time to time. Its case is that on its proper construction, cl.2.1(k), read together with cl.2.1(c) of the Agreement, required Golden Miles to supply reports and information under cl.2.1(k) which were true and accurate.[23] I would accept that the proper construction of cl.2.1(k) is that Golden Miles was obliged to supply regular reports, and other information when requested, which were true and accurate to the best of its knowledge. Given that Golden Miles was distributing Jacob & Co’s products, the reports and information were evidently for the purpose of keeping Jacob & Co informed of the level of sales and any other matter relating to the performance of Golden Miles’ contractual obligations. For the reports or information to be of any meaningful use to Jacob & Co, it must be the case that Golden Miles was to submit them on the basis that they were, to the best of its knowledge, true and accurate. This was particularly so given that Golden Miles had a relatively free hand in deciding on how it would promote and procure sales (cl.2.1(b)) whilst also having the obligation to spend no less than 10% of its net profit on marketing and promoting the Products (cl.2.1(h)), with Jacob & Co being obliged to pay half of the marketing costs (cl.3.1(d)). Jacob & Co would very much have to rely on the information provided by Golden Miles in order to find out how the sales of its products were faring and how much it should pay for marketing. It would be nonsensical if Golden Miles could fulfil its reporting obligation by submitting reports and information it knew to be false. In other words, the terms “reports” and “information” under cl.2.1(k) should not be stretched to include “reports known to be false” or “information known to be false”.

202.  In light of these points, I do not consider that it can be said a term that the parties should “perform their contractual obligation and behave honestly” meets the requirements of necessity or obviousness.

H.  WHETHER GOLDEN MILES IN REPUDIATORY BREACH FOR SUBMITTING FALSE OR EXAGGERATED RECEIPTS

H1.  The applicable principles

203.  In the case of a breach of an “intermediate” or “innominate” contractual term, the breach will be repudiatory where its consequences are so serious as to deprive the innocent party of substantially the whole benefit which it was intended that he should obtain from the contract: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 70 (Diplock LJ).

204.  Chitty on Contracts at paragraph 28-043 describes the test as follows.

“The question whether a breach of an intermediate term is sufficiently serious to entitle the innocent party to terminate further performance of the contract is to be determined "by evaluating all the relevant circumstances”. In conducting this inquiry, the court is not exercising a discretion, but is engaged in a fact-sensitive inquiry which involves “a multi-factorial assessment” and the use of various “open-textured expressions”. The bar which must be cleared before there is an entitlement in the innocent party to terminate the contract is a “high” one. A number of expressions have been used to describe the circumstances that warrant termination, the most common being that the breach must “go to the root of the contract”. It has also been said that the breach must “affect the very substance of the contract”, or “frustrate the commercial purpose of the venture”, and, at the present day, a test which is frequently applied is that stated by Diplock LJ in Hongkong Fir …”

H2.  The terms alleged to have been breached

205.  Jacob & Co alleged that in submitting fraudulent and exaggerated claims of marketing expenses in the Marketing Report, Golden Miles was in repudiatory breach of:

205.1  its obligation to act loyally and faithfully towards Jacob & Co in relation to the Business (cl.2.1(c));

205.2  its obligation to conduct the Business in an orderly and business-like manner (cl.2.1(d)); and

205.3  its obligation to submit written reports at regular intervals to Jacob & Co, showing levels of sales, and outstanding orders placed, and any other information relating to the performance of its obligations under the Agreement that Jacob & Co might reasonably require from time to time (cl.2.1(k)).

206.  The veracity of the items in the Marketing Report was investigated by Ms Michelle Chan (“Ms Michelle Chan”) and Ms Cathy Wu (“Ms Cathy Wu”), solicitors who were respectively formerly and currently employed by Jacob & Co’s solicitors. Both of them gave evidence at trial to confirm the investigations they carried out.

H3.  The extent of the falsity and exaggeration in the Marketing Report

207.  The Marketing Report set out a table of 40 items.

207.1  Items 1 to 25 were under the heading of “Promotion and Advertisement” and were stated to total US$1,333,104.

207.2  Items 26 to 37 were under the heading “Material Resources for Promotion and Advertisement (estimated)” and stated to total US$348,287.

207.3  Items 38 to 40 were under the heading “Human Resources for Promotion and Advertisement (estimated)”, with a total of US$31,129.

207.4  The report ended with the statement “Total Marketing fee = 1,333,104 + 348,287 + 31,129 = 1,712,520 USD”. There was no evidence at trial as to what the differentiation between the three groups of items might be.

207.5  The last column of the table was headed “Invoice”. A “YES” in this was marked for most of the items (including all of the ones considered below).

207.6  There then followed the supporting documents for the items.

208.  I now turn to deal with those items of which complaint was made.[24] I have borne in mind that given the seriousness of the allegation made against Golden Miles and Ms Ho, there should be cogent evidence before I find that any of the expenses were fraudulently claimed, or exaggerated in presentation. The more serious an allegation is, the less likely it is that the event in question occurred, and hence, the more cogent should be the evidence before the court concludes that the allegation is established on the balance of probability: Re H (Minors) [1996] AC 563 at 586C-H (Lord Nicholls).

H3.1  Items 1 & 2

209.  Item 1 was described as “Sponsor a china blogger a watch” with the figure of US$6,225. Item 2 was described as “Any pay to the blogger per month USD8500*6 month” with the figure US$51,000.

210.  The supporting invoices provided were issued by “My Favourite Limited”, with a Hong Kong address and signed by an unidentified person and chopped with the company chop of My Favourite Limited. Both invoices stated “This agreement serves to confirm that Golden Miles have sponsored a china blogger a watch with details below”. The first invoice stated that there was a “fee” of US$6,225; the second stated that there was a “fee” of US$8,500 per month for six months, totaling US$51,000.

211.  In Ms Ho’s witness statement, she said that the blogger was someone called “Shirley”, who was engaged by one Mr Lau Kei (“Mr Lau”) and a middleman called Yuan Yu (“Ms Yuan”). Ms Yuan was apparently Ms Ho’s customer who purchased bags from Ms Ho’s other company Brands International. For the payment of US$6,225 in item 1, this was in fact a gift to Ms Yuan as she was upset that Mr Lau gave a watch to Shirley as a gift.

212.  For the payments to Shirley totaling “at least” US$51,000 in item 2, Ms Ho’s statement said that these were made through Ms Yuan, in the form of setting off amounts owed by Ms Yuan to Brands International, but there were no invoices from either Shirley or Ms Yuan. My Favourite Limited was a company belonging to Mr Terry Yeung (who was not said to have had anything to do with Shirley or Ms Yuan). Ms Ho did not provide any explanation as to why the invoices were issued by My Favourite Limited, save to say that “As Emily and Nicola have both left the employment of Golden Miles, and as I have lost contact with Madam Yuan since about 6 months ago, I have yet to ascertain the full picture in this regard. I will endeavor to ascertain the situation and update this Court as soon as I am in a position to do so.” The witness statement was made in September 2019.

213.  Ms Ho was unable to provide any comprehensible “update” at trial. She could only say that My Favourite Limited did not do the work in items 1 and 2; it gave a quotation but Golden Miles did not use it; the invoices wrongly referred to an “agreement” but there was none. She provided no evidence of what amounts Brands International might have charged Ms Yuan and which might have been set off against payments made through Ms Yuan to Shirley. She provided no evidence of any communications with Ms Yuan regarding payment, such as text messages. For the US$6,225 in item 1, she suggested that it was appropriate to pay Ms Yuan to pacify her because she had expected that Ms Yuan would have kept some of the payments intended for Shirley but instead she had paid them all to Shirley.

214.  I do not believe Ms Ho’s claim that the amounts under items 1 and 2 were incurred and paid to Shirley. There simply is no credible evidence that this was done. Merely showing a screenshot of Shirley’s post wearing and promoting a Jacob & Co watch does not establish that such expenses were incurred or paid. Ms Ho’s own documents to My Favourite Limited contradicted her story.

H3.2  Item 3

215.  Item 3 was described as a “Charitable donations chi hang foundation a watch by Jacob and (7,450) and”, with the figures US$18,000, HK$140,400, and RMB156,000 (the figures appear to be equivalents in the three currencies). It relates to a watch with a retail value of US$17,000 which was donated by Jacob & Co to the Chi Heng Foundation, through an arrangement made by Golden Miles, at a charitable event organised by the Chi Heng Foundation in Shanghai. Ms Ho agreed that it cost Golden Miles nothing, as the watch was donated by Jacob & Co. She however claimed that Golden Miles made a cash donation of RMB68,000 at the event which was not included in item 3. The figure of RMB156,000 was in fact the hammer price at which the watch was sold in the charity auction at the event.

216.  Ms Ho herself said in evidence that the figure of RMB156,000 was not a marketing expense, but the “market value” of the watch. However, the Marketing Report had represented the RMB156,000, like the other items, as part of the “marketing fee” incurred by Golden Miles. There was no evidence that any additional donation of RMB68,000 was made.

217.  In her supplemental witness statement, Ms Ho claimed that there was nothing wrong with stating the hammer price of the watch as this was the “true, market or ultimate value of the donation made by Golden Miles”. It was also said that the purpose of the report was not to claim any expenses.

218.  However, the amount was not stated in the Marketing Report as representing such “true, market or ultimate value of the donation”. Rather, it was included with other items of expenses claimed to have been incurred and paid by Golden Miles. Nor was there any indication that the watch had in fact been supplied by Jacob & Co to Golden Miles without any cost. The presentation of the item was misleading, to say the least.

H3.3  Item 4

219.  Item 4 was described as “China charity federation”, with the figures of US$69,231, HK$540,000 and RMB600,000. It relates to a donation made to the China Charity Foundation. The website of the China Charity Foundation shows that it was a donation made in the name of Ms Ho, not Jacob & Co.

220.  When Ms Michelle Chan called the China Charity Federation to investigate, she was told that the RMB600,000 was paid in the name of Ho Ming Yuk (Ms Ho), and that Ms Ho subsequently asked the organisation to change the name to that of Golden Miles when issuing a certificate of thanks, although the name on the list of donors on the organisation’s website was not updated. The staff member also said that he was not aware of Jacob & Co or its involvement in the donation.

221.  For this item, I do not consider that the evidence is so cogent as to establish any fraudulent intention on the part of Golden Miles.

H3.4  Item 6

222.  Comprised within item 6 was a sum of HK$176,850, said by Ms Ho in her witness statement to represent the retail value of a “Five Time Zone Watch” taken away by Ms Marianne Wong of Time Concept Group Limited[25] without authority, as alleged remuneration, after Golden Miles terminated its business relationship with Time Concept. Jacob & Co’s complaint is that the watch was sold and shipped to Ms Ho’s Brands International at the cost of US$8,940, so there was no reason for Golden Miles to claim that it cost two and a half times that amount.

223.  In her supplemental witness statement, Ms Ho claimed that it was “right and fair” to cite the retail price of the watch in the Marketing Report as this was the revenue that Golden Miles would have fetched but for Ms Wong’s misappropriation.

224.  I agree with Jacob & Co’s submission that even on Golden Miles’ case that Ms Wong stole the watch, the retail value of the watch could not represent marketing expenses incurred by Golden Miles for carrying out any marketing. When the proposition was put to Ms Ho, she said that she disagreed, because Ms Wong had said that the amount was a sum spent for marketing. When the proposition was put to her again, she said that she either had to report the theft to the police, or to agree to what Ms Wong had done. The answers do not make sense and do not explain how the theft of the watch bought for US$8,940 could have been properly and honestly represented as a marketing expense of HK$176,850.

H3.5  Items 7 and 12

225.  Item 7 was described as “Gift for Prince event (02-05/2017)” in the amount of HK$36,400 (or US$4,667) and item 12 as “Gift for VIP” in the amount of HK$90,000 (or US$11,539). The invoices provided to Jacob & Co were issued by “Watch & Jewellery”, a business operated by Brands International. Jacob & Co’s complaint is that Brands International in fact ceased business on 1^st January 2016, as shown by the Government’s business registration records.

226.  Ms Ho’s explanation was that her staff forgot to pay the business registration fee for Brands International and its business registration therefore expired, but once the omission was discovered, the fee was paid and the business registration restored. Ms Ho was not further challenged about this. She was challenged as to the genuineness of the gifts allegedly purchased. While Ms Ho could produce no evidence that chocolates or gift boxes had been bought, there was equally nothing to really cast doubt on her claim that this had been done.

227.  Ms Ho said that item 7 had been mistakenly invoiced twice by Watch & Jewellery, and ascribed it to an inadvertent mistake on Nicola’s part. There is nothing to really cast doubt on this explanation.

H3.6  Items 16 and 34

228.  Item 16 was described as “Hainan Rendez-Vous”, for the amount of RMB 2,400,000 (or USD276,923 or HK$2,160,000). This was the China Rendezvous event referred to above. Item 34 (in the “Material Resources for Promotion and Advertisement (estimated)” section of the Marketing Report) was described as “Hainan Rendez-Vous (Transport, security, renovation, declaration)”, for the amount of RMB 1,800,000 (or USD 207,692 or HK$1,620,000). Two invoices with a logo “China Rendez-Vous Hainan China” and said to have been issued by Hainan Visun Rendez-vous Limited (“HVRL”) were included:

228.1  an invoice dated 15^th August 2017 for RMB 2,400,000, for “Strategic Partner Sponsorship of 2017 China Rendez-Vous”, said to be due by 19^th September 2017;

228.2  an invoice dated 15^th August 2017 for RMB 1,800,000, for “Exhibition cost of 2017 China Rendez-Vous including logistics, insurance, security, electricity, constructions, etc”, said to be due by 19^th September 2017.

229.  Jacob & Co’s complaint is that it had clearly indicated to Golden Miles that it should not proceed with the event, and in fact Golden Miles had not paid either of the invoices for RMB2.4m or RMB1.8m. Furthermore, the RMB1.8m invoice was not a reasonable estimate of construction costs.

230.  Golden Miles’ case was that it intended to take part in the event, and Mr Arabo had confirmed his agreement to proceed as at 11^th September 2017, so that as at August 2017, Golden Miles had expected to incur the two amounts. Furthermore, it had to pay a penalty of RMB400,000 due to last minute cancellation.

231.  I have earlier noted that Jacob & Co had in fact turned down the (repeated) requests of Golden Miles to participate in the event, on 25^th April 2017, 9^th May 2017 and 26^th July 2017. Mr Mazzocchi’s email of 26^th July 2017 made this very clear. He cited Ms Oun’s email of 4^th May 2017 and said “I do not understand how you can claim that you received no answers? I just listed above 3 mails NOT confirming that J&Co should participate. More clear than “we do not want to commit” Bopha [Oun] cannot be… Please do not do the China Rendez vous It is not accepted and we will not participate as mentioned in our mail back in May.”

232.  Ms Ho referred to the topic again in her email to Mr Mazzocchi of 9^th August 2017. She said that she would not force him to participate, but she had already paid for the event.

233.  Ms Ho repeated the claim of having already paid for the event in her email to Mr Mazzocchi of 7^th September 2017,[26] saying that “For the China event (China Rendezvous) which has been already confirmed and full paid (Hk$2,400,000) however there is no reply for you about whether it should be continued or cancelled. And now the deadline was passed and we need to cancel for this event with a penalty fee”.[27]

234.  It seems that Ms Ho then sent a message to Mr Arabo by WhatsApp on 11^th September 2017, saying that although the deadline had passed, the organiser had given Golden Miles one more chance, asking for a reply within two hours. “Could you please kindly inform me that whether this event should be continued? If we miss this chance again, then we won’t have further chance.” It was only then that Mr Arabo replied on the same day “Yes go ahead.”

235.  In my judgment, it was disingenuous of Ms Ho to say in her witness statement that “On 11 September 2017, Mr Arabo still confirmed to me by WhatsApp his agreement to go ahead with this marketing activity. Therefore, as at August 2017, Golden Miles expected to incur these costs”, without mentioning any of the earlier correspondence on the topic where Jacob & Co had consistently told her and her staff that it did not consent to participation in the event. In particular, as at August 2017 when the invoices were issued, Golden Miles could not have had the claimed expectation, based on Jacob & Co’s stance at the time, that it would go ahead (with Jacob & Co’s consent) to participate and incur the costs therefor.

236.  Ms Ho did not deny that the invoices for RMB2.4m and RMB1.8m were in fact never paid and that she should be taken as knowing that this was the case. This means that when Ms Ho wrote her emails of 9^th August 2017 (saying that she had already paid for the event) and of 7^th September 2017 (saying that the amount of “Hk$2,400,000” (no doubt a reference to the RMB2.4m invoice) had been fully paid), she knew that this was untrue.

237.  All that Golden Miles ever paid for the China Rendezvous Event was a penalty of RMB400,000, paid in October 2017. Mr Gomis was cross-examined to the effect that since Golden Miles paid the penalty, the claim was not fraudulent, but Jacob & Co’s complaint is not that the penalty amount was fraudulently claimed, but that the RMB2.4m and RMB1.8 amounts were fraudulently claimed to be expenses as they were never paid, as Ms Ho well knew.

238.  Ms Ho could not provide any explanation as to why the invoice for RMB2.4m could have honestly been included in the Marketing Report as an expense incurred by Golden Miles.

239.  For the RMB1.8m invoice, it transpired that the invoice was actually issued at Ms Ho’s request – a fact discovered by Ms Cathy Wu when she contacted Ms Ng of HVRL to investigate its two invoices. In response, Ms Ho in her supplemental witness statement admitted that she had asked for the invoice to be issued, but said that this was because she wanted to give Jacob & Co a total cost projection for the exhibition. She said that it was common practice that participants in an exhibition would have to pay not only a participating fee (which would have been the RMB2.4m amount), but also an amount to cover miscellaneous expenses (which would have been the RMB1.8m amount).

240.  Ms Cathy Wu in her witness statement had stated that HVRL had said that Ms Ho had asked for the invoice to be issued “for reasons unknown”. Ms Cathy Wu was cross-examined about this as her attendance note at the time had not mentioned “for reasons unknown”, and as she had not ascertained whether the Ms Ng of HVRL whom she spoke to was the one who had dealt with Golden Miles before.

241.  But whether or not HVRL knew why Golden Miles had asked for the invoice is not the point. The point is that there was no reason for Ms Ho to ask for the invoice to be issued, and then to include this in the Marketing Report as if it were an expense incurred by Golden Miles. Her claim that it was to give a cost projection made no sense if Golden Miles was not participating and not incurring the cost. Her further answer in oral testimony that she asked for the invoice and gave it to Jacob & Co, because she did not want Jacob & Co to think that Golden Miles had not done much, only serves to show that she did want Jacob & Co to rely on the document and think that Golden Miles had incurred the cost (which, to her knowledge, it had not).

242.  There is no explanation as to why the invoice for RMB1.8m could have honestly been included in the Marketing Report as an expense incurred by Golden Miles.

H3.7  Item 32

243.  Item 32 was described as “Prince Showcase renovation”, for the amount of HK$280,000 (or US$35,897). It related to a quotation dated 16^th August 2017 from one Point Advertising & Design (“PointAdvertising”) for HK$280,000 to supply and construct several showcases for Prince Tower. Ms Michelle Chan contacted a Mr Cheung of Point Advertising and discovered that (1) after issuing the quotation, Golden Miles had asked Point Advertising to issue an invoice, saying that it would pay before the work started, (2) Point Advertising had issued the invoice to Golden Miles with the same content on 17^th August 2017, (3) Golden Miles did not engage Point Advertising for the work and had not paid the invoice. These points were not disputed by Golden Miles (including its witnesses Ms Ho and Ms Charl Cheng).

244.  In her witness statement, Ms Ho’s explanation was that the quotation related to a special counter planned to be set up at Prince Tower. Golden Miles had been actively working on its implementation when Jacob & Co suddenly terminated the Agreement. In her supplemental witness statement, Ms Ho said that Golden Miles approved the quotation but before it could ask Point Advertising to proceed with the work, Jacob & Co terminated the Agreement. In her oral testimony, Ms Ho did not deny that Golden Miles had requested the issue of an invoice before work started and said that it would pay before work started. Her explanation was that Golden Miles had to give a sum to Point Advertising for buying materials. This does not make sense if Point Advertising did not require such a payment. Ms Ho could not explain why Golden Miles sought to pay if Point Advertising did not ask for payment. In re-examination, Ms Ho said that Golden Miles sought to make payment before the work was completed because it wanted Point Advertising to quickly finish the design and building, and “So, when it issued the invoice to us, we would make payment, because it needed to buy materials.” However, there is simply nothing to suggest that Point Advertising wanted payment to be made in order to buy materials, or to speed up its design and building.

245.  Furthermore, the dates do not add up. The invoice (which was not before the court) was apparently dated 17^th August 2017. According to the oral testimony of Ms Charl Cheng, the project at Prince Tower was originally planned to kick off at the end of August or early September. Jacob & Co claimed to terminate the Agreement by a letter of 29^th September 2017. Yet no payment was made (as Ms Charl Cheng also knew). If the purpose of the payment was to speed up design and enable purchasing of materials by Point Advertising, there is no explanation as to why it was not made by the time of termination of the Agreement, and no explanation why Point Advertising was not in fact engaged.

246.  I find that the inclusion of item 32 was to dishonestly represent that an expense of $280,000 had been incurred even though Ms Ho (and Ms Charl Cheng) knew that it had not.

H3.8  Item 9

247.  Item 9 was described as a “Public Relations fee”, for the sum of US$25,641 (or HK$200,000). Jacob & Co says that there was no independent evidence confirming payment of the expense. Golden Miles’ case is that the payment was made by cash by Mr Terry Yeung to a marketing consultant called Karen Wong in around March 2017, whom he introduced to Ms Ho.

248.  In his oral testimony, Mr Terry Yeung said that there would have been WeChat discussions between him, Ms Ho and Karen Wong; and he would have recorded the proposal from Karen Wong regarding an event for Golden Miles. However, no evidence of such discussions or proposal was ever disclosed by Golden Miles. No receipt or other documentary evidence of the payment having been made has ever been produced.

249.  Whilst it may be said that the lack of documentary evidence casts doubt on whether the payment was truly made or whether it was made in return for the work alleged, I do not consider that this is sufficient to conclude that the claim of making payment was a fraudulent or exaggerated one.

H3.9  Item 11

250.  Item 11 was also described as a “Public Relations fee”, for the sum of US$128,205 (or HK$1,000,000). Jacob & Co says that there was no independent evidence that any services were provided in return for the payment. In Ms Ho’s witness statement, she said that the item relates to fees paid to Madam Jing Ling (“Madam Jing”), who had an extensive social and business network in Hong Kong and on the mainland, and who introduced a number of important contacts to Ms Ho. Ms Ho said that the total amount of fees paid to Madam Jing for her service and contribution to marketing, together with gifts such as caterpillar fungus, exceeded HK$1m. A cheque drawn by Golden Miles in favour of Madam Jing for HK$400,000 and another for HK$500,000 was in the evidence. There was also a WeChat exchange showing that Madam Jing was apparently to be paid a share of Golden Miles’ profit upon Prince Jewellery successfully selling a watch.

251.  Given this evidence, I do not agree that Jacob & Co establishes that the item was a fraudulent or exaggerated one.

H3.10  Conclusion regarding the extent of the falsity and exaggeration in the Marketing Report

252.  I therefore find that there were several items in the Marketing Report, some of substantial value, which were falsely claimed as expenses incurred by Golden Miles when they had not been so incurred. Furthermore, Ms Ho was aware of the falsity. In this regard, I also bear in mind the context in which the Marketing Report was provided – as explained in the next paragraph, Ms Ho would have been well aware that what Jacob & Co was expecting to receive in the Marketing Report was an account of expenses incurred, and receipts to prove the expenditure.

253.  I do not accept the submission that the Marketing Report has to be viewed in the context that it was provided as a matter of “courtesy”.

253.1  I have already explained above that I do not accept that Ms Ho truly believed that the Alleged Oral Agreement had been made (so that provision of receipts was not necessary) and that this informed her approach to the provision of receipts “out of courtesy”.

253.2  On the contrary, the correspondence as set out earlier shows that Jacob & Co repeatedly asked for receipts to justify Golden Miles’ claimed expenses, and Ms Ho assured Jacob & Co that she would provide them. Ms Ho went on not only to provide them, but to provide corrected versions of the marketing report and to address Ms Oun’s comments about missing, insufficient or non-comprehensible invoices. For example:

253.2.1  Ms Oun’s email of 28^th June 2017 requested that Ms Ho and Vicky provide a marketing activity report to Jacob & Co covering activities since January 2017, including invoices paid by Golden Miles.

253.2.2  Ms Ho’s email of 24^th July 2017 tried to explain why receipts about publicity cost had not yet been provided. “We will also give back all the receipts to you as soon as possible.”

253.2.3  Mr Gomis’ email of 24^th July 2017: “As good business practice all these expenses must be supported by invoices. Accordingly, we will acknowledge the 5% Marketing Contribution as soon as we receive your invoices. … Indeed, as of today despite several emails from our Marketing Manager we still missing them. … After receiving the Marketing report and invoices, your open balance adjusted to $1,144,546.50 as per below recap and attachment …*Valid upon receipt of all invoices no later than August 15^th”

253.2.4  Mr Gomis’ email of 26^th July 2017 chased for the provision of the “Marketing report and related invoices”.

253.2.5  Ms Ho’s email of 10^th August 2017 to Ms Oun: “For the marketing report, we are preparing it which includes information what have been done from 2016 to 2017. We will send it to you asap.”

253.2.6  Mr Gomis’ email of 15^th August 2017 noted that as no report had been sent to Jacob & Co despite many emails requesting justification for Golden Miles’ expenses, no marketing deductions had been applied to the regular invoices.

253.2.7  Ms Ho’s email of 15^th August 2017 to Ms Oun with the first version of the marketing report, saying that some invoices were missing but she would provide them “asap”.

253.2.8  Ms Ho’s email of 17^th August 2017 to Ms Oun with the second version of the marketing report, and saying that she would keep sending invoices once she got them.

253.2.9  Ms Ho’s email of 18^th August 2017 saying that she had sent the marketing report on 15^th August 2017.

253.2.10  Ms Ho’s email of 24^th August 2017 to Ms Oun with the third version of the marketing report, and an explanation that there were new attachments which would be easier and more clear (to understand). The email further asked Ms Oun to identify which invoices were said to be missing, not understandable or not sufficient.

253.3  The correspondence also shows that Jacob & Co indicated that the receipts were sought in order to validate Golden Miles’ claim for marketing expenses (leaving aside how they were to be calculated), so that these documents served a real purpose for both parties, and were not merely for “courtesy”.

253.4  Moreover, leaving aside whether Jacob & Co was obliged to contribute a half share of the expenses incurred or not, Golden Miles separately had the obligation to spend 10% of its net profit on marketing, so that the accuracy of the amounts said to have been spent by Golden Miles would have still have been relevant and important information for the parties.

253.5  I would further observe that “courtesy” could not in any event describe the false items above. Even if Ms Ho did not consider that she had any obligation to account for her marketing activities to Jacob & Co, it could not have been “courtesy” to provide (for example) receipts from My Favourite Limited for a blogger’s services which had nothing to do with My Favourite Limited (items 1, 2), or to represent the hammer price of a watch donated by Jacob & Co as a marketing expense incurred by Golden Miles (item 3), or to provide invoices of expenses for the China Rendezvous Event which had not been incurred (items 16 and 34), or to represent the quoted price of work by Point Advertising as a marketing expense when it was not (item 32).

254.  Standing back and looking at all of the items above, I also agree with Mr Chan’s submission that they demonstrate that (1) Golden Miles was not conducting the Business in an orderly and business-like manner, in that either Ms Ho did not incur some of the expenses as claimed, or that (2) even on her own version of events, the Business was conducted in a shambolic way (for example the lack of any records regarding the blogger’s fees or the set-off with Ms Yuan under items 1 and 2), or the lack of records as to what was done in return for the $200,000 cash payment to a marketing consultant under item 9 or the “over 1 million” paid to Madam Jing under item 11.

255.  I therefore accept Jacob & Co’s submission that Golden Miles was in breach of cll.2.1(c), 2.1(d) and 2.1(k) of the Agreement in falsely claiming that expenses had been incurred when they had not.

H4.  Whether breaches repudiatory

256.  The next question that arises is whether the breaches were repudiatory in nature. The assessment is multi-factorial in nature. The bar is a “high” one, and the breach must affect the very substance of the contract.

257.  The starting point is to consider the Agreement. The purpose of the Agreement was not simply for Jacob & Co to maximise sales of its watches to Golden Miles by whatever means possible. It is not disputed that the Products under the Agreement were high-end watches. It was apparent from the Agreement that apart from the Territory, Jacob & Co sold the Products in other places around the world (see for example cll.3.1(q), 3.1(u)). Golden Miles was to be appointed as Jacob & Co’s sole and exclusive distributor for the purpose of marketing and selling the Products in the Territory. The first of Golden Miles’ obligations listed under cl.2.1(a) was to promote the Products in the Territory. It had to spend no less than 10% of its net profit on marketing and promoting the Products (cl.2.1(h)). In other words, a key obligation of Golden Miles under the Agreement was to promote the Products in the Territory and sell them to customers, using a specified minimum level of expenditure.

258.  Golden Miles was to be Jacob & Co’s exclusive distributor for ten years. During that time, Golden Miles could promote and procure sales by means which it considered appropriate (cl.2.1(b)), all the while acting loyally and faithfully towards Jacob & Co in relation to the Business (cl.2.1(c)). Jacob & Co was itself not allowed to sell any Products in the Territory whether directly or through anyone else (cl.3.1(a)), it had to use its best endeavours to prohibit the parallel import of Products into the Territory (cl.3.1(u)), and it could not carry out its own advertising, marketing or promotional activities in the Territory except with Golden Miles’ agreement (cl.3.1(p)). Not only did Golden Miles have a large measure of control over marketing activities in the Territory, but also, Jacob & Co was to do various things to support Golden Miles’ promotion of the Products (see for example cll.3.1(b) to 3.1(f)), including the payment of half[28] of the cost of all advertisements and promotional activities incurred by Golden Miles (cl.3.1(d)). Golden Miles did however have to submit regular reports about levels of sales, and also provide any other information relating to the performance of its obligations which Jacob & Co might reasonably require (cl.2.1(k)).

259.  What was therefore contemplated under the Agreement was that Jacob & Co would entrust the important task of promotion of the Products entirely to Golden Miles within the Territory for a substantial period of ten years, whilst supporting such promotion and paying for half of it. In return, Golden Miles would (inter alia) spend a specified amount on promotion, act loyally and faithfully to Jacob & Co, and provide accurate information relating to the performance of its obligations when requested – information which Golden Miles must have known would be relied on by Jacob & Co. In such a context, provision of false information about expenses supposedly incurred on promotion of the Products went to the very substance of the Agreement.

260.  I bear in mind that only some of the claimed expenses were false. That said, some of them were for substantial amounts, such as the RMB2.4m invoice and RMB1.8m invoice in respect of the China Rendezvous Event, which were the two largest invoices out of all the items in the Marketing Report.

261.  Taking all these matters into account, I find that the breaches[29] were repudiatory of the Agreement.

H5.  Whether Jacob & Co can rely on the breaches to justify termination of the Agreement

262.  The falsity of the claimed expenses was discovered only after the termination of the Agreement. Jacob & Co relies on the principle that a party who terminates a contract for a wrong reason can rely on another valid reason to justify the termination, even if he did not know of that valid reason at the time of termination, so long as (1) the valid reason (a) existed at the time of the termination, and (b) could not have been put right by the defaulting party, and (2) the terminating party is not precluded by waiver or estoppel from relying on the valid reason, citing Boston Deep Sea Fishing and Ice Company v Ansell (1889) 39 Ch D 339 at 352 (Cotton LJ) and 364 (Bowen LJ) and Chitty on Contracts at paragraph 28-067.

263.  Golden Miles does not dispute the general principle, but focuses on the proviso that if the point not taken was one which could have been put right, the principle does not apply, citing Arnold Roberts Ltd v Glorious Motors Ltd[2018] HKCFI 2467 at [108], [109] (Recorder Stewart Wong SC). It further advanced the propositions that:

263.1  the test is not whether the defective performance would have been put right, but whether it could have been put right: by not being told of the point, the terminating party would have been unfairly deprived of the opportunity to put it right, citing Arnold Roberts Ltd at [109]; and

263.2  it is not necessary to put right an existing breach, but only to cure the breach in the sense of putting right matters for the future, citing L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 249-250 (Lord Reid);

263.3  the great majority of breaches should be capable of remedy, citing Akici v LR Butlin Ltd [2006] 1 WLR 1296 at [64] to [65] (Neuberger LJ);

263.4  deliberately wrongful conduct is not necessarily sufficient to render any alleged breach incurable, citing Phoenix Media Ltd v Cobweb Information Ltd at [59] to [72] (Neuberger J).

264.  Golden Miles submits that accordingly, in order for Jacob & Co to have validly terminated the Agreement, it should have identified the alleged breaches (the false Marketing Report and receipts) and should have notified Golden Miles of this so as to give it a fair opportunity to put matters right; had it done so, there is no reason why Golden Miles could not have immediately put them right (by resubmission of the Marketing Report), so that the Agreement could have continued to run its course without any loss of trust and confidence.[30]

265.  As Jacob & Co submitted, whether or not a breach is capable of remedy is a practical rather than technical inquiry: Akici at [64]. On the facts, I consider that the breach constituted by the submission of false expenses in the Marketing Report was irremediable, even if one proceeds on the basis of the propositions advanced by Golden Miles above. This was not a case of Golden Miles innocently, or even negligently, including expenses in the Marketing Report as incurred expenses when they had not been incurred. Rather, it was a case of Golden Miles presenting expenses as incurred expenses whilst knowing that they not been so incurred. It makes little sense to say that Jacob & Co needed to identify these for Golden Miles’ benefit before Jacob & Co could validly terminate the Agreement. Once Jacob & Co learnt of the falsely claimed expenses, its trust in Golden Miles would have been lost. Even if the Marketing Report had been corrected, Jacob & Co would have lost trust in Golden Miles, so matters could not have been put right for the future, and the Agreement could not (contrary to Golden Miles’ submission) have continued to run its course without any loss of trust and confidence. Furthermore, for what it is worth, I consider that it was not only the case that the breaches could not have been put right, but also that the breaches would not have been put right by Golden Miles: the attitude of Ms Ho at trial was that there was nothing wrong with the way in which the false expenses had been included in the Marketing Report.

I.  JACOB & CO’S COUNTERCLAIM

I1.  Counterclaim for US$572,773.35

266.  At the August Meeting, Mr Arabo presented a statement of Golden Miles’ account as at 28^th August 2017, showing an open balance due from Golden Miles in the amount of US$470,198.15 (the Disputed Amount), after taking into account a 5% “marketing” deduction of US$572,773.35. It is Jacob & Co’s case that Mr Arabo said that he would allow Golden Miles to make the deduction only if it paid the US$470,198.15 immediately, and provided supporting receipts for its marketing expenses. When this was put to Ms Ho in cross-examination, her response was that Mr Arabo did not say or write this down at the time, and that it was only mentioned in the email afterwards. That is presumably a reference to the 29.08.2017 Email from Mr Gomis, asking for payment of the US$470,198.15. Ms Ho went on to say that Mr Arabo had suggested that from September onwards, a total deduction of 7% rather than 10% (5% marketing and 5% “bonus”) would be used, and her response was that she would consider it.

267.  Since I have found that the Alleged Oral Agreement was not made, and since it is not Golden Miles’ case that aside from the Alleged Oral Agreement, there was any other basis for Golden Miles to make the deduction of 5% of gross purchases, there was no basis for Golden Miles to withhold payment of US$572,773.35 from the amounts due to Jacob & Co for its purchases under the Agreement.

I2.  Counterclaim for opening of Macau shop

268.  It is Jacob & Co’s case that in November 2017, it learnt that Golden Miles was about to open a shop in Macau, without having first obtained Jacob & Co’s consent. Since the Agreement had by then been terminated, the use of Jacob & Co’s intellectual property and operation of the shop was a breach of cll.7.6(c), (d) and (f) of the Agreement. It is Golden Miles’ case that whilst it originally had planned to open a shop at the site of the Macau shop, Jacob & Co unreasonably refused to consent to the plan, and Golden Miles never proceeded to open the shop; it had told one Jonathan Lee, a watch retailer who was to open the shop, that the opening could not proceed because Jacob & Co had not given its consent.

269.  The evidence relied on by Jacob & Co was hearsay evidence from Mr Gomis, who said that Ms Marianne Wong of Time Concept Limited visited the shop in January 2018, named as “F&J by Jacob & Co”, and saw that it was selling Jacob & Co watches, some of which were the same models as watches which Golden Miles had bought from Jacob & Co.

270.  Ms Ho’s explanation was that she had sold some watches to Jonathan Lee, some of which he on-sold through his shops, and that the Macau shop was one such shop. She said that Golden Miles did not know about, or authorise, these sales.

271.  There is insufficient evidence for me to be satisfied that Golden Miles was indeed operating the Macau shop or selling watches it had bought from Jacob & Co at that shop.

272.  I reject this part of the counterclaim.

J.  GOLDEN MILES’ CLAIM FOR LIQUIDATED DAMAGES

273.  In light of my findings above, Golden Miles’ claim for relief does not arise. For completeness, however, I will briefly deal with the parties’ dispute regarding Golden Miles’ entitlement to claim liquidated damages, which was argued in opening submissions.

274.  Paragraph 104 of Golden Miles’ Opening stated that Golden Miles relied on cl.7.4 of the Agreement, and claimed that it was therefore entitled to US$12m by way of liquidated damages.

275.  Jacob & Co objected that no claim for liquidated damages had been pleaded. The only claim for damages in the ASOC was a claim for unliquidated damages for “loss of sale and profits”, and “loss of goodwill”, arising from the alleged wrongful termination of the Agreement by Jacob & Co.

276.  Mr Yuen submitted that the claim for liquidated damages under cl.7.4 of the Agreement did not need to be pleaded. He submitted that:

276.1  the rules of pleading were to protect against a surprise being sprung on the opposing party, and that there was no need to plead legal consequences, citing Lee Yuk Shing v Dianoor International Ltd (in liquidation) [2016] 4 HKC 535, Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd (2020) 23 HKCFAR 138, and Poon Hau Kei v. Hsin Chong Construction Co Ltd, Taylor Woodrow International Ltd Joint Venture (2004) 7 HKCFAR 148;

276.2  Jacob & Co should not be taken by surprise, as it had been given notice that Golden Miles would rely on cl.7.4 of the Agreement for this purpose through Golden Miles’ Listing Questionnaires filed between 21^st December 2021 and 13^th July 2022 which had indicated, in the section describing the brief factual background and issues to be tried, that Golden Miles would rely on cl.7.4;

276.3  no fresh evidence was needed in order to calculate the damages under cl.7.4 of the Agreement.

277.  Mr Chan submitted that allowing the claim to proceed would cause irreparable prejudice to Jacob & Co. He submitted that had a claim for liquidated damages been properly pleaded, Jacob & Co could have pleaded its defence thereto, and prepared relevant evidence in support. For example, there might have been an argument that cl.7.4 represents an unenforceable penalty clause. For that purpose, the court would need to determine whether the clause was out of all proportion to the innocent party’s legitimate interest in enforcing the contract. That legitimate interest would first have to be identified, and then an assessment would have to be made as to whether the clause was out of all proportion to that interest, by considering the circumstances in which the contract was made. See Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 195 at [69], [70] (Chu JA, as she then was). In the present case, it would have been relevant to enquire into what the parties’ expectations as to profits and loss and damage at the time of entering into the Agreement were. These are all matters on which Jacob & Co could have adduced factual evidence.

278.  In my judgment, Golden Miles was not entitled to proceed on an unpleaded claim for liquidated damages under cl.7.4 of the Agreement. Whether or not the issues have been sufficiently identified by the pleadings in any particular case depends on the context of the individual case: cf. Lee Yuk Shing at [79] (Kwan JA, as she then was). In Lee Yuk Shing, all the material facts had been pleaded and it was merely the legal consequence of those facts which had not. Similarly, there was no issue of prejudice in Poon Hau Kei (see [24]). In the present case, whilst Golden Miles may not have sought to adduce any further evidence to support its calculation of liquidated damages, Jacob & Co may have wished to adduce further evidence in support of an argument that cl.7.4 was unenforceable as a penalty.

279.  The fact that reference to Golden Miles’ intended reliance on cl.7.4 of the Agreement was made in its Listing Questionnaires does not address the prejudice. A statement of intention by a plaintiff in its Listing Questionnaire that it intends to rely on a clause in a contract for the computation of damages is no substitute for a properly pleaded claim setting out the basis and quantification of the claim, to which a defendant can properly plead a defence, and prepare evidence in support. The submission that it was Jacob & Co’s fault for failing to raise the absence of pleading is to put the burden on the wrong party.

280.  I therefore rule that it is not open to Golden Miles to advance a claim for liquidated damages under cl.7.4 of the Agreement.

K.  CONCLUSION; DISPOSITION

281.  I dismiss Golden Miles’ claim.

282.  I make a declaration that Jacob & Co has validly terminated the Agreement.

283.  Jacob & Co succeeds in its counterclaim for US$572,773.35. I dismiss the remainder of the counterclaim (relating to the Macau shop) for damages and injunctive relief.

284.  I further make a costs order nisi that Golden Miles is to pay to Jacob & Co the costs of and occasioned by the action, with certificate for two counsel, to be taxed if not agreed.

Mr Rimsky Yuen SC leading Mr Thomas Wong, instructed by Reed Smith Richards Butler LLP, for the Plaintiff

Mr Anthony Chan SC leading Mr William Wong, instructed by Deacons, for the Defendant

HCA 2453/2017

[2018] HKCFI 441

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2453 OF 2017

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D E C I S I O N

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APPLICATIONS BEFORE COURT

Plaintiff’s application for interlocutory injunction

1.  By an agreement dated 18 November 2016 (“Agreement”), the defendant, the manufacturer of luxurious watches and jewellery (“Products”) under the brand “Jacob & Co” (“Brand”), appointed the plaintiff as the exclusive distributor of the Products in Hong Kong, Macau and the PRC (“Territory” collectively) for a term of 10 years.

2.  On 29 September 2017, by a letter from Deacons to the plaintiff, the defendant terminated the Agreement with immediate effect (“Termination”)

(1)  pursuant to clause 7.2 of the Agreement on the ground that the plaintiff had continued to fail to pay a sum of US$470,198.15 (“Disputed Sum”) over 30 days after the defendant’s written notice under clause 7.2(a); and/or

(2)  under the common law as the plaintiff’s failure to pay the defendant sums owed pursuant to the Agreement despite repeated reminders amounted to a material breach of the Agreement.

3.  The plaintiff considered the Termination wrongful and issued the writ of summons herein on 24 October 2017, seeking inter alia a declaration as to the subsistence of the Agreement and the plaintiff’s status as the exclusive distributor of the Products in the Territory as well as an injunction restraining the defendant from inter alia marketing or selling any Products under the Brand anywhere in the Territory other than through the plaintiff until the expiry of the Agreement.

4.  By a summons issued on 21 November 2017 (“Summons”), the plaintiff applied for an interlocutory injunction restraining the defendant (whether by itself, its directors, officers, employees or agents or in any other way) from

(1)  marketing or selling any Products whether directly or indirectly anywhere in the Territory other than through the plaintiff; or

(2)  representing to anyone that:

(a)  the Agreement has been terminated or that the plaintiff has ceased to be the defendant’s exclusive distributor in the Territory; or

(b)  anyone other than the plaintiff is the defendant’s sales representative, agent or distributor for marketing or selling the Products in the Territory

until the final determination of this action or further order of the court.

5.  On 24 November 2017, upon the evidence then filed by the plaintiff in support of the Summons, I adjourned the substantive hearing of the Summons to 16 January 2018 for further evidence and preparation and granted an interim injunction in terms of that sought by the Summons until the final determination of the Summons or further order of the court (“Interim Injunction Order”).

6.  The plaintiff wishes to have the Interim Injunction Order continued until trial whereas the defendant presses for its discharge.

Plaintiff’s application to adduce further evidence after hearing

7.  Prior to the hearing on 16 January 2018, the parties have between them filed 151 pages in affidavits to which documents running to 730 pages were exhibited. 

8.  At the hearing, the plaintiff sought leave to rely on the 3^rd affirmation of Madam Ho Ming Yuk Winnie (“Ho”) made on 15 January 2018.  I allowed the application but gave the defendant leave to file and serve an affidavit, within 3 days after the hearing, limited to responding to paragraphs 16 to 21 of Ho’s 3^rd affirmation by deposing to the instructions that Mr Benjamin Yu SC (leading Mr Anthony Chan) informed the court that he had obtained from the defendant on those paragraphs.  On 19 January 2018, the defendant filed and served the 2^nd affidavit of Richard David Hudson of the same date to exhibit a copy of the 2^nd affidavit of Marianne Wong Mun Wai (“Wong”) made on 18 January 2018 in Geneva, Switzerland.

9.  After the hearing, by a letter dated 26 February 2018 from its solicitors Reed Smith Richards Butler (“RSRB”) to the court, the plaintiff applied for leave to adduce the 2^nd affirmation of Cheng Charl (“Cheng”) dated 26 February 2018 to refute Wong’s 2^nd affidavit.  Pursuant to my directions, the defendant has by Deacons’ letter dated 28 February 2018 made submission in opposition to such application, to which the plaintiff has by RSRB’s letter dated 2 March 2018 replied.

UNDERLYING DISPUTE

10.  The short-lived collaboration between the plaintiff and the defendant from November 2016 to September 2017 has generated numerous allegations and cross-allegations.  By the affidavits and exhibits they adduce (and seek to further adduce) in support of / in opposition to the Summons, the parties give the court their respective recollection and perception of all aspects of their relationship and dealings.  There is a vast amount of details, closely analysed by each side to show why the other side’s version of events and propositions should be dismissed.  It is neither possible nor necessary for present purposes to set out all the parties’ evidence.  What I aim to do under this heading is to identify the matters in dispute and outline the parties’ respective position thereon.  However, I have read and considered all the materials placed before me.

The parties and their key personnel

11.  The plaintiff is a Hong Kong company with an issued share capital of HK$1.  There is no information as to its date of incorporation but there is evidence that the person behind it (i.e. Ho) acquired the single issued share in the plaintiff only shortly before the Agreement on 1 August 2016.  Ho is also the plaintiff’s sole director.  Ho portrays herself as having many personal relationships and connections in the luxury goods market in the Territory.

12.  The defendant is a Swiss company founded, owned and controlled by Mr Jacob Arabo (“Arabo”) who started to produce jewellery and bespoke gem-set watches using the motif “Jacob & Co” since 1986 and 2002 respectively, even before the incorporation of the defendant on 12 May 2003.

13.  Apart from Arabo, the defendant dealt with the plaintiff also through inter alia the following personnel:

(1)  Mr Maurizio Mazzocchi (“Mazzocchi”), director and Managing Chief Executive Officer;

(2)  Mr Caquim Gomis (“Gomis”), Chief Financial Officer; and

(3)  Mr Lam Yen Er Lawrence (“Lam”) whose business card bears the title “Head of Asia-Pacific, Jacob & Co, SA” but who is described by the defendant as an independent consultant to the defendant in the Southeast Asian region.

Sale of Product in Territory prior to Agreement

14.  According to Mazzocchi, products of the Brand are sold around the world at almost 40 points of sale with 2 flagship boutiques in New York and Dubai.

15.  Insofar as the Territory is concerned, prior to the Agreement:

(1)  King Fook Jewellery Group Limited (“King Fook”) acted as the distributor of watches under the Brand in Hong Kong (but not Macau or the PRC) between 2005 and late 2013, during which King Fook advertised watches of the Brand in Hong Kong and sold them at 3 retail locations in Hong Kong.

(2)  Since 2003, Jacob & Co Watches Inc also sold jewellery and gemstones (which were not covered by the King Fook distributorship) in the Territory.

(3)  Following the end of the King Fook distributorship, the defendant itself continued to advertise and sell watches and jewellery under the Brand in the Territory with sales totalling just under CHF6 million (yielding almost CHF3 million in profits) from 2014 to 2016 (up to the execution of the Agreement).

Agreement

16.  Insofar as it is material, the Agreement included the following clauses:

(1)  Definition:

“Business”: “The promotion and sale of the Products by the [plaintiff] in the Territory”

“Net Profit”:   “The actual price received by the [plaintiff] for Products (excluding sales taxes), less the Purchase Price for such Product, and less the [plaintiff]’s cost of sales in respect of such Products”

“Products”: “Watch and jewellery in the brand name of “Jacob & Co” and other brand names as designated by the [defendant]”

“Rights: “the sole and exclusive right of the [plaintiff] to carry on the Business for the term as set out in this Agreement unless earlier determined as provided for in this Agreement using the intellectual property of the Products.”

“Territory”: “[Hong Kong], [Macau] and the [PRC].”

(2)  Clause 1.1:

“The [defendant] hereby grants the Rights to the [plaintiff] and appoints and engages the [plaintiff] as its sole and exclusive distributor in the Territory for the purpose of marketing and selling the Products in the Territory and the [plaintiff] hereby accepts such appointment and engagement subject to the terms and conditions as hereinafter stated.”

(3)  Clause 1.2:

“The [defendant] hereby undertakes not to:

(a) sell or attempt to sell the Product (whether directly or indirectly) in to or for the Territory during the term of the Agreement; or

(b) appoint or engage any other or additional sales representatives, agents or distributors to do so.”

(4)  Clause 2.1:

“The [plaintiff] hereby agrees with the [defendant] throughout the term of this Agreement to:

(a) promote the Products in the Territory;

(b) promote and procure sales of the Products in the Territory by appropriate means which the [plaintiff] shall consider as appropriate;

(c) act loyally and faithfully towards the [defendant] in relation to the Business;

(d) conduct the Business in an orderly and business-like manner;

…

(h) spend no less than 10% of the Net Profit arising from the sale of the Products in the Territory on marketing and promoting the Products;

(k) submit written reports at regular intervals to the [defendant], showing levels of sales, and orders placed by the [plaintiff] with the [defendant] that are still outstanding, and any other information relating to the performance of its obligations under this agreement that the [defendant] may reasonably require from time to time.”

(5)  Clause 2.3:

“The [plaintiff] may operate branded Product boutiques or flagship stores for the Products within the Territory, provided that the [defendant] provides its consent to the location and presentation of such boutiques/stores (such consent not to be unreasonably withheld).”

(6)  Clause 3.1:

“The [defendant] hereby agrees with the [plaintiff] throughout the term of this Agreement to:

…

(d)  pay 50% of the cost of all advertisements, promotional activities or otherwise incurred by the [plaintiff] and the [plaintiff] may set off such cost owing to it by the [defendant] against any amount payable to the [defendant] by the [plaintiff] from time to time.”

…

(p)  agree in advance with the [plaintiff] any advertising, marketing and promotional activities conducted by the [defendant] in the Territory;”

(7)  Clause 3.2:

“In consideration of the [plaintiff]’s obligations set out herein, the [defendant] shall not, directly or indirectly, sell or export or permit or authorise the sale or export of the Products to customers in the Territory through any channels other than the [plaintiff]. …”

(8)  Clause 4.5:

“…, the [plaintiff] shall pay 10% of purchase price of the Products … upon the receipt of the [defendant]’s invoice and the [plaintiff] agrees to pay and settle the outstanding balance of the [defendant]’s invoices … within thirty (30) days of receipt of the Products by the [plaintiff].”

(9)  Clause 7.1:

“Subject to clause 7.2 herein, this Agreement … shall be valid for a period of ten (10) years. The [plaintiff] will target to achieve the purchase in aggregate US$1.8 million of Products in the fourth year of this Agreement.”

(10)  Clause 7.2:

“Either party hereto may terminate this Agreement without prior notice and having immediate effect in the following circumstances:

(a)   if the other party does not cure any breach or default within thirty (30) days after written notification thereof;”

In this decision, references to numbered clauses are to clauses of the Agreement.

Plaintiff’s operation after Agreement

17.  Apart from the distribution and sale of the Products under the Agreement, the plaintiff does not appear to have any other business undertaking.  Such business was run by Ho herself who claims to have ceased all her other key business ventures in order to focus on developing and marketing the Brand. 

18.  Ho was initially assisted by just one full-time staff whose primary duty was to attend to the accounts and orders and one part-time evening employee who had no involvement in the business side of the plaintiff’s operation and only helped Ho handle the plaintiff’s correspondence in English (including by email and WhatsApp) as Ho’s command of English is limited.

19.  In about May/June 2017, the plaintiff entered into a 3-year dealership arrangement (“Prince Dealership”) with Prince Jewellery Prince and Watch Company Limited (“Prince Jewellery”), a prominent retailer of luxurious watches and jewellery in Hong Kong.  Under the Prince Dealership, Prince Jewellery agreed to purchase a specified quantity of watches of the Brand from the plaintiff.  After the conclusion of the Prince Dealership, according to Ho, Prince Jewellery became the plaintiff’s major retail outlet, selling most of the watches it purchased from the defendant. 

20.  Before the Prince Dealership, the plaintiff seemed to have made one-off arrangements with Prince Jewellery and others such as Wong and her husband’s company, Time Concept Holdings Limited (“Time Concept”), a brand management consultancy, on a project basis to market and promote watches of the Brand in Hong Kong.  (The arrangement with Wong’s said company in February 2017, however, came to a premature end on bad terms for different reasons depending on who one asks.)

21.  It was not until about mid September 2017 that the plaintiff recruited 3 marketing personnel, including a Marketing Manager (namely, Cheng) who is said to have extensive experience in promoting, and arranging high-end marketing events for, luxury watch brands.

22.  According to the plaintiff’s reckoning, the Plaintiff’s total purchases from the defendant up-to-date added up to US$12,046,967 (US$11,986,592 as at 29 September 2017, i.e. the date of the Termination) which, the plaintiff says, exceeded the projected sales target of US$1.8 million in the 4^th year of co-operation under clause 7.1 by over 6 times and 3 years ahead of schedule.  The plaintiff’s purchases included the Billionaire watch which was first introduced into the market by the defendant in 2015 with a published retail price of US$18 million and which was sold at US$4.3 million by the defendant to the plaintiff who then resold it through Prince Jewellery just a few months after the Agreement.

Dispute after Agreement

23.  Despite the volume of the plaintiff’s purchase, the parties soon got into difficulties in their collaboration.

24.  First, there was disparity between the defendant’s expectation as to how the plaintiff should promote and market the Brand and the Products in the Territory and account for the associated costs and expenses and the manner in which the plaintiff actually did so.

25.  It is the plaintiff’s case that, before the Agreement, the Brand was virtually unknown in the PRC and very rarely talked about in Hong Kong.  Ho has drawn my attention to the marketing campaigns and activities that the plaintiff arranged, and the publicity generated thereby, for the Brand since 2016:

(1)  the display of prominent billboards at different prime locations in Hong Kong;

(2)  the launch of joint tailor-made advertising campaigns with Prince Jewellery in February, April and June 2017;

(3)  the attendance at, and organisation of, various charitable auctions and events in both Hong Kong and PRC by Ho;

(4)  the placement of advertisements in mainstream media in Hong Kong; and

(5)  the procurement of Poly Auction (Hong Kong) Ltd to place the Brand’s watches onto its Prestigious Watch Auction List for their 2017 Spring and Autumn auctions including the full page back cover and to include the Brand’s watch as the only timepiece on its massive billboard at the Hong Kong International Airport next to a painting that is worth over HK$100 million.

26.  On promotion and marketing, the parties have put in evidence numerous exchanges by email and WhatsApp by which the defendant

(1)  reminded the plaintiff of the need for uniformity of its marketing efforts (including private events and dinners for connoisseurs) with those made by the defendant and its other distributors;

(2)  urged the plaintiff to share marketing plans and budgets in advance for discussion and agreement with the defendant and to seek the defendant’s prior approval before participating in, or incurring expenses for, promotional activities;

(3)  sought from the plaintiff details about marketing activities in which the plaintiff had participated or wished to participate and the expenses associated therewith;

(4)  turned down specific promotional events put forward by the plaintiff; and

(5)  asked and chased the plaintiff for a marketing activity report for events from January 2017.

27.  The defendant takes the view that the global presence of the Brand and the Products makes it important to co-ordinate the marketing campaigns and sales strategies of the defendant and its distributors all over the world to ensure that the materials put out, using the defendant’s intellectual property researched and developed at its own costs, are coherent and consistent with the image and quality of the Brand that the defendant seeks to promote.  To that end, the defendant expects its distributors to work closely with it on marketing and promotional matters and materials through regular reporting from the distributors to the defendant and prior discussion between the defendant and the distributors on issues concerning the timing, contents and costs of marketing and promotional materials, advertisements, campaigns and projects. The defendant was therefore anticipating from the plaintiff, as it does from its other distributors, marketing plans and reports with detailed information and budgetary estimates at regular intervals for discussion with the defendant and prior approval by the defendant, before implementation. 

28.  However:

(1)  The plaintiff does not consider itself bound by the Agreement to consult or coordinate with the defendant or seek the defendant’s prior approval before conducting any marketing activities.

(2)  As stated above, the plaintiff did not engage any marketing personnel until the latter half of 2017.  It promoted the Brand and the Products, especially in the initial stage, largely by making use of Ho’s personal connections and relationships in the luxury goods market and by having her attended different marketing and promotional activities and functions where she would get to meet distinguished guests and VIPs, as and when opportunities arose.

(3)  While the plaintiff did from time to time inform the defendant of its broad marketing plan and costs position, according to Ho, the plaintiff did so out of courtesy and in the spirit of good co-operation, rather than to honour any contractual obligation.

(4)  When the voluntary provision of information was returned with more and more questions and requests for details and supporting documents from the defendant, with its limited manpower, the plaintiff could only respond to the defendant as and when Ho and its staff were free to do so, which explains why there were admittedly occasions when the defendant’s requests for details and documents regarding the plaintiff’s marketing activities remained unanswered.

(5)  Further, according to Ho, the consequences of the plaintiff’s said approach to marketing and the nature of the promotional activities conducted or attended by the plaintiff, not all expenses were supported by invoices or receipts bearing references to the Brand or to the plaintiff, eg payments were made and official receipts were issued in Ho’s own name for many charitable events or auctions attended by Ho though she acted as representative of the Brand.

29.  These differences resulted in mutual dissatisfaction.  While the plaintiff saw the defendant as being unduly intervening in matters of marketing by the plaintiff when it had no contractual right to do so, the defendant became more and more dissatisfied with the plaintiff’s marketing style.  From the defendant’s point of view, the plaintiff

(1)  saw itself as having a free hand in the promotion of the Brand and the Products in the Territory;

(2)  had no coherent marketing strategy to speak of;

(3)  only advised the defendant of marketing events in a piecemeal manner, often giving very short notice (or even no notice); and

(4)  in any event provided very little basic information (such as the costs of the event or its relevance) to the defendant even when it did notify the defendant;

(5)  often refused or failed to provide such information or any further details even when chased by the defendant;

(6)  saw and treated the defendant’s requests for marketing reports and information as an annoyance. 

30.  Second:

(1)  The defendant says it also became concerned that the plaintiff was not adhering to its payment obligation under clause 4.5 so much so that the plaintiff owed the defendant more than US$4.5 million for more than 30 days at the time of the meeting to be mentioned in paragraph 33 below.

(2)  The plaintiff denies owing any money to the defendant at the relevant time, saying that the 21 invoices issued by the defendant to the plaintiff between October 2016 and March 2017 had either been fully settled or not yet become due.

(3)  Also, the plaintiff suggests that the defendant had waived the 10% deposit requirement by often not issuing an invoice therefor.

31.  Third, the defendant provided the plaintiff with the proforma monthly sales report used by the defendant’s distributors via Lam’s emails dated 30 December 2016 and 23 January 2017. However, the plaintiff failed to submit to the defendant any such monthly sales report, or otherwise provide the defendant with any sales figures.  While the defendant knew how much stock the plaintiff had purchased from it, it had no idea what sales turnover the plaintiff had actually achieved.  Without the sales figures, the defendant could not calculate the plaintiff’s net profit, which was required for the operation of clause 2.1(h) which obliged the plaintiff to spend no less than 10% of its net profit on marketing, which the defendant had to share equally with the plaintiff under clause 3.1(d).  (It was not until 9 October 2017 that the plaintiff sent the defendant a report on the Products that it had sold since the commencement of the Agreement.  The defendant was not satisfied with such report as it did not state the price at which each watch had been sold which, the plaintiff however retorts, was not required even in the proforma monthly sales report supplied by the defendant.)

32.  Fourth, in the midst of such differences, beginning from early 2017, the plaintiff proposed to enter into the Prince Dealership.  Ho had shown Lam a spreadsheet showing the proposed split of profits between the plaintiff and Prince Jewellery.  In response, Lam (who had consulted Mazzocchi) had expressed to Ho the view that the proposed terms were too harsh for the plaintiff and that it would be risky for the plaintiff to enter into such an arrangement at that early stage of its distributorship.  According to Mazzocchi, the plaintiff’s solution was to ask for greater financial support from the defendant in order to make the Prince Dealership work. 

Meeting in March 2017

33.  The differences that developed after the Agreement culminated in a meeting between Ho and Mazzocchi (with Lam acting as interpreter) in late March 2017 in Geneva during BaselWorld 2017 (“March Meeting”). 

34.  There is significant disagreement as to what was said or agreed (if at all) at the March Meeting.

35.  On one hand, the plaintiff claims that the parties reached what it calls the “March Agreement” whereby:

(1)  The parties agreed on what the plaintiff calls the “Fixed Percentage Mechanism”, ie that instead of the fixed 5% mechanism provided for in clause 3.1(d), the defendant’s contribution to the plaintiff’s marketing expenses would be revised to and fixed at 10% of the plaintiff’s purchases from the defendant.

(2)  Of this 10% contribution, 5% would be labelled as the defendant’s marketing contribution whilst the other 5% would be labelled as a bonus from the defendant to the plaintiff.

(3)  The 10% deduction would be implemented immediately, and retrospectively, to all of the plaintiff’s purchases since 2016.

(4)  The first deduction would be applied to all purchases made in 2016 up to the end of the first quarter of 2017, and thereafter the deduction would be applied after each quarter.

(5)  In view of the Fixed Percentage Mechanism, the plaintiff would not be required to furnish to the defendant any details or documentary proof in relation to its marketing activities or expenses.

36.  On the other hand, according to Mazzocchi, no binding agreement was concluded at the March Meeting.  He merely told Ho that:

(1)  The defendant would in principle be prepared to agree to an arrangement where it would allocate a sum equivalent to 5% of the plaintiff’s gross purchases from the defendant as the defendant’s contribution to the plaintiff’s marketing expenses, with the plaintiff contributing the same amount, provided that the defendant would receive receipts for all marketing expenses so it could be sure that it was paying for legitimate expenses.

(2)  The defendant may further be prepared to give the plaintiff a bonus to be based on achievement of an annual sales target to be agreed and contingent on the defendant being provided with the final Prince Dealership agreement so as to give the defendant an idea of the quantity of watches likely to be sold thereunder to see if a bonus would be warranted and, if so, to fix the size of the bonus.  The main reason this bonus arose for discussion was that the plaintiff needed more credit from the defendant because its expected profit margin under the Prince Dealership was likely to be thin.

37.  It is not in dispute that, after the March Meeting, the plaintiff did not submit any receipts of its marketing expenses to the defendant until August 2017.  It is also common ground that the plaintiff has never provided the defendant with the agreement in respect of the Prince Dealership.[i]

Escalation of dispute after March Meeting

38.  The plaintiff has adduced the correspondence between the parties after the March Meeting on the state of accounts between them, from which it appears that:

(1)  The parties did proceed on the basis that the plaintiff was entitled to be credited with or to deduct from the price of its purchases from 2016 a 5% sum described as the defendant’s marketing contribution.

(2)  Until early May 2017, any disagreement appeared to be focused upon whether the plaintiff was also entitled to be immediately credited with, or to immediately deduct, another 5% as a bonus, with the defendant maintaining the position that no bonus of any form would be allowed by its auditors before the year end financial results were known.

(3)  On about 9 May 2017, the defendant softened over the deduction of the 5% bonus insofar as the years of 2016 and 2017 were concerned, but making it clear that there would be no advance bonus for 2018.

(4)  The defendant budged in respect of a bonus for 2018 on 10 May 2017 by Lam’s WhatsApp message to Ho that “[Mazzocchi] agrees that we will also support you for 2018” and that “[a]s long as you are in business agreement with Prince, we will support you”.

(5)  On about 10 July 2017, the defendant allowed the plaintiff to settle 4 invoices by netting off inter alia 10% of the plaintiff’s purchases for the second quarter of 2017.

39.  The plaintiff relies on the correspondence from April to early July 2017 as showing the repeated acknowledgment and implementation of the March Agreement by the defendant which, the plaintiff says, tends to support the existence of such agreement.

40.  On the other hand, the defendant explains the correspondence as part of its difficult effort in obtaining payment of long overdue invoices from the plaintiff.  The references to and deduction of a 5% marketing contribution and later a 5% bonus were made (i) on the assumption that the plaintiff would provide the information and material that the defendant needed to allow it to reach an agreement along the lines discussed at the March Meeting namely, information and documents concerning the plaintiff’s marketing expenses and the Prince Dealership agreement; (ii) under anxiety to obtain some payment from the plaintiff as soon as possible and (iii) under the pressure being put on Lam by Ho.

41.  Anyway, on 21 July 2017, the defendant sent to the plaintiff a statement of account which showed that the plaintiff owed the defendant the sum of US$1,949,751 and demanded payment.  This sum was arrived at by including, as unpaid, invoices previously settled by the plaintiff by adopting the Fixed Percentage Mechanism, ie with a 10% deduction.

42.  By Gomis’ email to Ho dated 15 August 2017, the defendant demanded the plaintiff to settle outstanding payment in the total sum of US$953,371.50. 

43.  To disagree a little, Gomis’ email of 15 August 2017 ended with this statement: “As no report has been sent despite many mails requesting them to justify your expenses, no Marketing deduction has been applied on regular invoices.”

44.  In this regard, the defendant had since the March Meeting continued to press the plaintiff for marketing reports and documentary proof of marketing activities and expenses. 

45.  On 15 August 2017, the plaintiff sent the defendant by email 3 documents respectively entitled “Marketing Activity Report (11/2016 – 05/2017)”, “Physical Resources for Promotion and Advertisement (estimated)” and “Human Resources for Promotion and Advertisement (estimated)” which together showed how marketing expenses totalling US$1,824,965 were spent.

46.  Updated versions of these 3 documents showing a revised total marketing expenses of US$1,850,975 were sent on 17 August 2017.

47.  Further revised versions giving total marketing expenses at US$1,712,520 were provided by the plaintiff to the defendant on 24 August 2017.

48.  Coming back to the question of payment, apart from the dispute over their state of account, beginning from early August 2017, the defendant pressed the plaintiff for full payment on all purchases before arranging delivery.  The plaintiff saw this as a departure from clause 4.5 whereas the defendant explains this as a protective reaction to the plaintiff’s failure to follow clause 4.5 and refusal to provide information concerning marketing plans and expenses which caused the defendant to gradually lose trust in, and good faith towards, the plaintiff.

49.  The plaintiff also perceived an increasingly slow, or lack of, response on the part of the defendant to the plaintiff’s operational needs, for example, when the plaintiff made enquiries about watches, placed orders or asked for support to the plaintiff’s marketing events etc, which the defendant denies.

Meeting in late August 2017

50.  In late August 2017, Ho (accompanied by a Mr Terry Yeung as her interpreter) and Arabo met in Geneva.  Not surprisingly, the parties’ accounts of this meeting differ.  It is safe to say that no consensus was reached from either party’s point of view.

Termination

51.  On 29 August 2017, Gomis sent Ho another email (“29.8.2017 Email”) demanding for payment of US$540,198.15.  As the 29.8.2017 was relied upon by the defendant as constituting the notice required by clause 7.2(a) in effecting the Termination pursuant to clause 7.2, I shall set out the whole of this email:

“After discussion with Mr. Jacob, both watches will be shipped to you. My colleagues will provide you with the shipping documents as soon as possible.

However, please wire USD 540’198.15 when you return:

USD470’198.15 with regards to the open balance as per the statement discussed and approved yesterday with Mr. Jacob

USD70’000 regarding the open balance of the Solar timepiece sn: YANG46

Thank you for your confirmation.”

52.  The sum of US$470,198.15 mentioned in this email is the Disputed Sum.

53.  The plaintiff did not pay the Disputed Sum, giving the reason that the plaintiff was entitled to deduct the same pursuant to the March Agreement (though, according to Mazzocchi, there was at one stage talks about Ho paying this amount from her personal account.  It is unnecessary to go into the parties’ competing explanations as to why this was not pursued).

54.  On 29 August 2017, the defendant effected the Termination.  In this regard, paragraphs 6(d), (e), 8, 9 and 10 of Deacons’ letter to the plaintiff read as follows:

“6. We are instructed that:

…

(d) At a meeting at our client’s offices in Switzerland on 28 August 2017 attended by our client’s Mr. Jacob Arabo and your Ms. Ho, your Ms. Ho agreed on your behalf with our client that upon receipt and approval of supporting documents relating to your various marketing expenses, our client would grant credit of US$572,773.35 to you, leaving you within (sic) an open balance of US$470,198.15 which you would settle immediately.

(e) Our client’s Mr. Gomis gave written notice on behalf of our client via an email to Ms. Ho on 29 August 2017 stating that you were to make payment of the outstanding open balance.

…

8.  Notwithstanding further reminders from our client, including emails from Mr. Mazzocchi to your Ms. Ho dated 6 and 11 September 2017, no payment has been made.  In addition, despite reminders from our client, the further documentation an information concerning marketing expenses has also not been forthcoming at the time of writing.

9.  In light of your failure to make payment following Mr. Gomis’ email of 29 August 2017 reminding you of your default in payment, and in light of the fact that over 30 days have elapsed since Mr. Gomis’ email was sent, please treat this letter as notice on behalf of our client of termination of the Agreement pursuant to clause 7.2 of the Agreement.

10.  Further or alternatively, your failure to pay our client the sums owed pursuant to the Agreement despite repeated reminders amounts to a material breach of the Agreement, and our client accepts the breach and treats the Agreement as terminated as at the date of this letter.”

55.  The plaintiff maintains the position that it did not owe the defendant any money as at 29 September 2017:

(1)  As at 29 September 2017, the plaintiff had purchased US$11,986,592 worth of stock from the defendant.

(2)  Under the March Agreement, the plaintiff was entitled to have 10% of its purchases deducted and treated as the defendant’s contribution to the plaintiff’s marketing expenses, so that the plaintiff only had to pay 90% of US$11,986,592, ie US$10,787,932.80.

(3)  By 29 September 2017, the plaintiff had already paid US$10,943,277.  That is to say, instead of owing the defendant money, the plaintiff should actually have a credit balance of US$155,344.20 (i.e. US$10,943,277 less US$10,787,932.80).

56.  The plaintiff is convinced that the defendant was motivated to terminate the Agreement by its desire to bypass the plaintiff and directly deal with Prince Jewellery so as to reap the rewards of the plaintiff’s marketing efforts and maximise its profit.

Post-writ events

Payment of Disputed Sum under protest

57.  Upon the commencement of this action, on 24 October 2017, the plaintiff tendered payment of the Disputed Sum “under protest” “solely to prevent [the defendant] from manufacturing any further artificial complaint in its attempt to unilaterally and unfairly repudiate the Agreement” and with the caveat that it would claim for the return of the money with interest in this action.

Voluntary undertaking by defendant until 1 December 2017

58.  At the plaintiff’s request by RSRB’s letter dated 24 October 2017 to Deacons, the defendant by Deacons’ reply dated 27 October 2017 to RSRB gave the plaintiff an undertaking (“Undertaking”) in terms of paragraphs 2 to 4 of the Endorsement of Claim until 1 December 2017. Paragraphs 2 and 3 were the same as the Interim Injunction Order.  Paragraph 4 required the defendant not to do any act which would cause or procure a breach or breaches by the plaintiff’s dealers, distributors or retailers (including but not limited to Prince Jewellery) of agreements already made or to be made between the plaintiff and such retailers for the distribution or sale of the Products anywhere within the Territory.  The defendant agreed to undertake in terms of paragraph 4 but, to “ensure compliance” by the defendant, requested for copies of the agreements which the defendant was required not to cause a breach, in particular, the Prince Dealership agreement.

59.  The request for the Undertaking appears to have been prompted, at least partly, by Ho learning from Prince Jewellery that Lam had on 18 October 2017 visited Prince Jewellery’s main store and suggested to Prince Jewellery:

(1)  that the Agreement had already been terminated as the plaintiff had failed to pay a sum of around US$500,000;

(2)  that the defendant was eager to maintain a business relationship with Prince Jewellery and that Prince Jewellery could, from then on, directly order watches from the defendant; and

(3)  that the defendant would like to continue cooperation with Prince Jewellery and did not want to cease its Hong Kong business.

60.  The defendant agrees that Lam informed Prince Jewellery executives during a meeting on 18 October 2017 that the Agreement had been terminated (without explaining the reasons behind the termination) and that Prince Jewellery could contact him if they needed assistance (and not that watches could be ordered direct from the defendant).  According to the defendant, subject to the resolution of this action, its plan is to operate in the Territory via a distributorship arrangement as in other regions for strategic reasons.

61.  The Undertaking, however, did not ease the tension between the plaintiff and the defendant.

62.  To begin with, the defendant considers that no undertaking was ultimately effected in terms of paragraph 4 of the Endorsement of Claim due to the plaintiff’s refusal to provide copies of the relevant agreements which the defendant was to undertake not to cause a breach (particularly the Prince Dealership agreement).

63.  Further, it is the plaintiff’s case that the defendant had breached the Undertaking right after it was given by selling directly to Prince Jewellery,which the defendant disputes.  More particularly:

(1)  First, on 27 October 2017, the defendant (through Wong) sent Prince Jewellery drawings of a special counter to be set up at the Prince Tower store of Prince Jewellery for the sale of the Products which, the plaintiff says, suggests that the defendant had been taking steps to directly supply the Products to Prince Jewellery.  The defendant argues that the supply of drawings did not fall within the Undertaking.  It has no intention of selling direct to Prince Jewellery.  The counter was to showcase the Products.  Such showcase project was arranged between the plaintiff, the defendant and Prince Jewellery before the Termination.  The plaintiff had asked the defendant to supply the drawings to Prince Jewellery but the defendant had not yet done so.  The defendant asked Wong to do so as Prince Jewellery was accustomed to dealing with Wong.  The plaintiff does not accept this explanation for a number of reasons.  First, it denies having asked the defendant to supply any drawings to Prince Jewellery.  Second,the defendant has been aware of the breakdown of relationship between the plaintiff and Wong and should therefore not have instructed or allowed Wong to liaise with Prince Jewellery on the plaintiff’s behalf.

(2)  Second, the defendant’s website no longer shows the plaintiff as the distributor of the Brand in the Territory but mentions the name and contact details of Prince Jewellery insofar as the Hong Kong market is concerned.

(3)  Third, according to Ho, Prince Jewellery had in early November 2017 informed the manager in charge of the luxury goods sector of the Suncity Group in Macau that Prince Jewellery was the “main distributor” (總代理) of the Brand.

(4)  Fourth, on around 14 November 2017, the shopkeeper of the Tsim Sha Tsui store of Prince Jewellery informed a friend of Ho that Prince Jewellery had become the main distributor of the Brand and that there would soon be a boutique opened for the Brand in Shanghai at Shanghai Xiantiandi (上海新天地).

(5)  Fifth, Cheng learnt on 20 and 21 November 2017 that an advertisement for the Brand had been placed (but not by the plaintiff) with “Spiral” (游絲腕錶雜誌), one of the leading watch magazines published and circulating in Hong Kong, with the cover of the January 2018 issue featuring the watch of the Brand referred to as “九星連珠".

Defendant’s investigation of claims for marketing expenses submitted by plaintiff

64.  The 3 tranches of marketing expenses reports provided by the plaintiff to the defendant on 15, 17 and 24 August 2017 were accompanied by some receipts.  However, the defendant considered such documents inadequate in supporting the expenses claimed and continued to press for documentation proving that the marketing expenses that the plaintiff claimed to have incurred were legitimate, even after the commencement of this action.  The solicitors’ correspondence ended with RSRB’s letter dated 7 December 2017 reiterating that the plaintiff has no obligation to provide documentation concerning marketing expenses.

65.  According to Mazzocchi, having received no further information from the plaintiff concerning its claimed marketing expenses, the defendant and its solicitors have carried out their own investigations, including making inquiries with various third parties involved in the events or matters concerned, in an attempt to determine the legitimacy of the marketing expenses claimed by the plaintiff. 

66.  The defendant presents the results of its investigation in the form of a 15-page table included in exhibit “MM-1” to Mazzocchi’s affidavit dated 14 December 2017.  In short, the defendant concludes that some of the expenses have not been incurred at all or have been exaggerated and others appear to be dubious at best.  Mazzocchi has in paragraph 86 of his affidavit highlighted, and explained why, certain claims are problematic.  In summary, according to the defendant:

(1)  Under claims 1, 3, 19 and 28 (Part 2), the expenses claimed as marketing expenses were in fact paid or incurred by the defendant itself or third parties including Prince Jewellery, and not the plaintiff;

(2)  Under claims 2, there is no evidence of promotion of the Brand by the blogger said to have been paid commission of US$51,000 for 6 months.

(3)  Under claim 4, there is no evidence of the donation in question being referable to the Brand or the Products.

(4)  Claims 5, 9, 11, 13 and 38 were supported only by invoices issued by the plaintiff itself and not any evidence of actual payment by the plaintiff.

(5)  Under claims 6, 16 and 34, the expenses had been grossly exaggerated or not actually been paid by the plaintiff.  Further, claims 16 and 34 were in respect of participation in an event called Hainan Rendez-Vous which the defendant had told the plaintiff not to proceed with.

(6)  Under claims 7 and 12, the invoices were issued by a business called “Watch & Jewellery” operated by a company wholly owned by Ho on dates after the operation of such business had ceased according to its business registration records.

(7)  Claims 17 and 34 duplicates the same expenditure.

(8)  Claim 32 was in respect of works that had not taken place.

67.  The defendant sees a strong case that many of the plaintiff’s claimed expenses were extremely problematic at best or disingenuous or fraudulent at worst.  Claims 1, 2, 3, 4, 6, 7, 12, 16, 17, 19, 28 (part 2), 31, 32 and 34 (leaving out claims 5, 9, 11, 13 and 38 which were unsupported by any evidence of actual payment by the plaintiff) total about US$896,556.99.  It is the defendant’s case that such discoveries about the plaintiff’s claims for marketing expenses have made it impossible for the defendant to trust the plaintiff.

After Interim Injunction Order

Impasse

68.  Following the grant of the Interim Injunction Order, the parties did for a while entered into negotiation of terms for purchase of the Products by the plaintiff from the defendant outside of the Agreement.  While the parties could agree on payment by the plaintiff of 50% of the purchase price upfront and 50% within 30 days, there was eventually no transaction (save for the sale and purchase of 2 Astronomia Solar watches for the plaintiff to honour pre-existing orders) because the parties could not agree on giving the plaintiff the option of returning some or all of the watches and setting them off against the 50% balance payable and, if appropriate, even seeking a refund from the defendant.  The defendant says it did not want to run the risk (which it considered real) of finding itself with few or no sales and holding excess stock of unsold watches should the plaintiff elect to return most or all of the watches it received.

Plaintiff’s complaint of breaches of Interim Injunction Order by defendant

69.  After the grant of the Interim Injunction Order, there have been 3 advertisements published for the Brand, the first one in the “World Wrist Watch Annual Book 2017/18” published on around 30 November 2017; the second one in the “TimeSquare Watch Calendar 2017-18” published on around 21 December 2017; and the third one in “Spiral” published on 14 January 2018.

70.  According to Mazzocchi, arrangements for the first and second-mentioned advertisements had been made before 24 November 2017 and could not be undone.

71.  The plaintiff makes the point that the placement of these advertisements was plainly an act of marketing in breach of the Undertaking as well as the Interim Injunction Order and the defendant could and should have cancelled or recalled the advertisements since 27 October 2017 (when the Undertaking was given) or 24 November 2017 (when the Interim Injunction Order was made) but chose not to do so.

72.  Paragraphs 16 to 21 of Ho’s 3^rd affirmation raised the third-mentioned advertisement.  In short, according to inquiries by the plaintiff made with the managing editor of “Spiral” on 21 November 2017 (see paragraph 63(5) above), the product photoshoot for the January cover had not yet been arranged, nor has the magazine been provided with any product information for the featured cover story. Ho therefore surmised that the product photoshoot was arranged and the product information was supplied to the magazine after the Interim Injunction Order. 

73.  In answer, according to the 2^nd affidavit of Wong (who was the person liaising with “Spiral” on the January 2018 issue cover feature story on the Brand since late October or early November 2017), the article was written on the magazine’s own initiative in exercise of the freedom of the press despite having been told of the Interim Injunction Order against the defendant.

74.  By Cheng’s 2^nd affirmation, the plaintiff seeks to show that the editor-in-chief of “Spiral” has confirmed to Cheng that the magazine did not publish the advertisement on the Brand for free; that the magazine had no reason to publish such advertisement but for Time Concept’s insistence; and the magazine required full payment upfront from Time Concept before confirming the placement of the advertisement and that such editor has confirmed these points by a letter dated 21 February 2018 to RSRB.

75.  There are also miscellaneous complaints by the plaintiff, for example, about an invitation issued by the defendant in early December 2017 to various Hong Kong media to attend the annual “Salon International de la Haute Horlogerie Genève”, a major international watch-exhibition, in mid-January 2018 in Geneva;[ii] and the use of Taiwan as a transit for sale into Hong Kong via the grant of the Taiwan distributorship to a company of Wong’s husband, etc.

Miscellaneous matters

76.  As said earlier, the affidavit evidence before me raises numerous factual disputes.  For example, there are issues as to whether the plaintiff had sought the defendant’s prior consent to the opening of a Brand boutique in Macau, as required by clause 2.3, and whether the plaintiff has as requested by the defendant abandoned the plan to open such boutique; whether the plaintiff had the defendant’s authority to represent itself as “Jacob & Co China”.  It is unnecessary for me to go into these other matters.

PRINCIPLES FOR GRANT OR REFUSAL OF INTERLOCUTORY INJUNCTIONS

77.  The legal tests governing the grant or refusal of interlocutory injunctive relief are well settled.  I start with Lord Diplock’s speech in American Cyanamid Co v Eithicon Ltd [1975] AC 396 (HL) at 407F-409D which, as explained by the Hong Kong Court of Appeal in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118, per Ribeiro JA (as he then was) at [28]-[32], guides the court to ask the following questions in deciding whether it is just or convenient to grant an interlocutory injunction:

(1)  whether there is a “serious question to be tried” which means that the claim must not be frivolous or vexatious;

(2)  if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3)  if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that

HCA 2453/2017 [2018] HKCFI 441 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2453 OF 2017 ------------------------ BETWEEN       GOLDEN MILES GROUP HOLDINGS LIMITED Plaintiff   And     JACOB & CO LTD Defendant ------------------------ Before: Hon Lisa Wong J in Chambers Date of Hearing: 16 January 2018 Date of Decision: 12 March 2018 ________________ D E C I S I O N ________________ APPLICATIONS BEFORE COURT Plaintiff’s application for interlocutory injunction 1.  By an agreement dated 18 November 2016 (“Agreement”), the defendant, the manufacturer of luxurious watches and jewellery (“Products”) under the brand “Jacob & Co” (“Brand”), appointed the plaintiff as the exclusive distributor of the Products in Hong Kong, Macau and the PRC (“Territory” collectively) for a term of 10 years. 2.  On 29 September 2017, by a letter from Deacons to the plaintiff, the defendant terminated the Agreement with immediate effect (“Termination”) (1)  pursuant to clause 7.2 of the Agreement on the ground that the plaintiff had continued to fail to pay a sum of US$470,198.15 (“Disputed Sum”) over 30 days after the defendant’s written notice under clause 7.2(a); and/or (2)  under the common law as the plaintiff’s failure to pay the defendant sums owed pursuant to the Agreement despite repeated reminders amounted to a material breach of the Agreement. 3.  The plaintiff considered the Termination wrongful and issued the writ of summons herein on 24 October 2017, seeking inter alia a declaration as to the subsistence of the Agreement and the plaintiff’s status as the exclusive distributor of the Products in the Territory as well as an injunction restraining the defendant from inter alia marketing or selling any Products under the Brand anywhere in the Territory other than through the plaintiff until the expiry of the Agreement. 4.  By a summons issued on 21 November 2017 (“Summons”), the plaintiff applied for an interlocutory injunction restraining the defendant (whether by itself, its directors, officers, employees or agents or in any other way) from (1)  marketing or selling any Products whether directly or indirectly anywhere in the Territory other than through the plaintiff; or (2)  representing to anyone that: (a)  the Agreement has been terminated or that the plaintiff has ceased to be the defendant’s exclusive distributor in the Territory; or (b)  anyone other than the plaintiff is the defendant’s sales representative, agent or distributor for marketing or selling the Products in the Territory until the final determination of this action or further order of the court. 5.  On 24 November 2017, upon the evidence then filed by the plaintiff in support of the Summons, I adjourned the substantive hearing of the Summons to 16 January 2018 for further evidence and preparation and granted an interim injunction in terms of that sought by the Summons until the final determination of the Summons or further order of the court (“Interim Injunction Order”). 6.  The plaintiff wishes to have the Interim Injunction Order continued until trial whereas the defendant presses for its discharge. Plaintiff’s application to adduce further evidence after hearing 7.  Prior to the hearing on 16 January 2018, the parties have between them filed 151 pages in affidavits to which documents running to 730 pages were exhibited.  8.  At the hearing, the plaintiff sought leave to rely on the 3rd affirmation of Madam Ho Ming Yuk Winnie (“Ho”) made on 15 January 2018.  I allowed the application but gave the defendant leave to file and serve an affidavit, within 3 days after the hearing, limited to responding to paragraphs 16 to 21 of Ho’s 3rd affirmation by deposing to the instructions that Mr Benjamin Yu SC (leading Mr Anthony Chan) informed the court that he had obtained from the defendant on those paragraphs.  On 19 January 2018, the defendant filed and served the 2nd affidavit of Richard David Hudson of the same date to exhibit a copy of the 2nd affidavit of Marianne Wong Mun Wai (“Wong”) made on 18 January 2018 in Geneva, Switzerland. 9.  After the hearing, by a letter dated 26 February 2018 from its solicitors Reed Smith Richards Butler (“RSRB”) to the court, the plaintiff applied for leave to adduce the 2nd affirmation of Cheng Charl (“Cheng”) dated 26 February 2018 to refute Wong’s 2nd affidavit.  Pursuant to my directions, the defendant has by Deacons’ letter dated 28 February 2018 made submission in opposition to such application, to which the plaintiff has by RSRB’s letter dated 2 March 2018 replied. UNDERLYING DISPUTE 10.  The short-lived collaboration between the plaintiff and the defendant from November 2016 to September 2017 has generated numerous allegations and cross-allegations.  By the affidavits and exhibits they adduce (and seek to further adduce) in support of / in opposition to the Summons, the parties give the court their respective recollection and perception of all aspects of their relationship and dealings.  There is a vast amount of details, closely analysed by each side to show why the other side’s version of events and propositions should be dismissed.  It is neither possible nor necessary for present purposes to set out all the parties’ evidence.  What I aim to do under this heading is to identify the matters in dispute and outline the parties’ respective position thereon.  However, I have read and considered all the materials placed before me. The parties and their key personnel 11.  The plaintiff is a Hong Kong company with an issued share capital of HK$1.  There is no information as to its date of incorporation but there is evidence that the person behind it (i.e. Ho) acquired the single issued share in the plaintiff only shortly before the Agreement on 1 August 2016.  Ho is also the plaintiff’s sole director.  Ho portrays herself as having many personal relationships and connections in the luxury goods market in the Territory. 12.  The defendant is a Swiss company founded, owned and controlled by Mr Jacob Arabo (“Arabo”) who started to produce jewellery and bespoke gem-set watches using the motif “Jacob & Co” since 1986 and 2002 respectively, even before the incorporation of the defendant on 12 May 2003. 13.  Apart from Arabo, the defendant dealt with the plaintiff also through inter alia the following personnel: (1)  Mr Maurizio Mazzocchi (“Mazzocchi”), director and Managing Chief Executive Officer; (2)  Mr Caquim Gomis (“Gomis”), Chief Financial Officer; and (3)  Mr Lam Yen Er Lawrence (“Lam”) whose business card bears the title “Head of Asia-Pacific, Jacob & Co, SA” but who is described by the defendant as an independent consultant to the defendant in the Southeast Asian region. Sale of Product in Territory prior to Agreement 14.  According to Mazzocchi, products of the Brand are sold around the world at almost 40 points of sale with 2 flagship boutiques in New York and Dubai. 15.  Insofar as the Territory is concerned, prior to the Agreement: (1)  King Fook Jewellery Group Limited (“King Fook”) acted as the distributor of watches under the Brand in Hong Kong (but not Macau or the PRC) between 2005 and late 2013, during which King Fook advertised watches of the Brand in Hong Kong and sold them at 3 retail locations in Hong Kong. (2)  Since 2003, Jacob & Co Watches Inc also sold jewellery and gemstones (which were not covered by the King Fook distributorship) in the Territory. (3)  Following the end of the King Fook distributorship, the defendant itself continued to advertise and sell watches and jewellery under the Brand in the Territory with sales totalling just under CHF6 million (yielding almost CHF3 million in profits) from 2014 to 2016 (up to the execution of the Agreement). Agreement 16.  Insofar as it is material, the Agreement included the following clauses: (1)  Definition: “Business”: “The promotion and sale of the Products by the [plaintiff] in the Territory” “Net Profit”:   “The actual price received by the [plaintiff] for Products (excluding sales taxes), less the Purchase Price for such Product, and less the [plaintiff]’s cost of sales in respect of such Products” “Products”: “Watch and jewellery in the brand name of “Jacob & Co” and other brand names as designated by the [defendant]” “Rights: “the sole and exclusive right of the [plaintiff] to carry on the Business for the term as set out in this Agreement unless earlier determined as provided for in this Agreement using the intellectual property of the Products.” “Territory”: “[Hong Kong], [Macau] and the [PRC].” (2)  Clause 1.1: “The [defendant] hereby grants the Rights to the [plaintiff] and appoints and engages the [plaintiff] as its sole and exclusive distributor in the Territory for the purpose of marketing and selling the Products in the Territory and the [plaintiff] hereby accepts such appointment and engagement subject to the terms and conditions as hereinafter stated.” (3)  Clause 1.2: “The [defendant] hereby undertakes not to: (a) sell or attempt to sell the Product (whether directly or indirectly) in to or for the Territory during the term of the Agreement; or (b) appoint or engage any other or additional sales representatives, agents or distributors to do so.” (4)  Clause 2.1: “The [plaintiff] hereby agrees with the [defendant] throughout the term of this Agreement to: (a) promote the Products in the Territory; (b) promote and procure sales of the Products in the Territory by appropriate means which the [plaintiff] shall consider as appropriate; (c) act loyally and faithfully towards the [defendant] in relation to the Business; (d) conduct the Business in an orderly and business-like manner; … (h) spend no less than 10% of the Net Profit arising from the sale of the Products in the Territory on marketing and promoting the Products; (k) submit written reports at regular intervals to the [defendant], showing levels of sales, and orders placed by the [plaintiff] with the [defendant] that are still outstanding, and any other information relating to the performance of its obligations under this agreement that the [defendant] may reasonably require from time to time.” (5)  Clause 2.3: “The [plaintiff] may operate branded Product boutiques or flagship stores for the Products within the Territory, provided that the [defendant] provides its consent to the location and presentation of such boutiques/stores (such consent not to be unreasonably withheld).” (6)  Clause 3.1: “The [defendant] hereby agrees with the [plaintiff] throughout the term of this Agreement to: … (d)  pay 50% of the cost of all advertisements, promotional activities or otherwise incurred by the [plaintiff] and the [plaintiff] may set off such cost owing to it by the [defendant] against any amount payable to the [defendant] by the [plaintiff] from time to time.” … (p)  agree in advance with the [plaintiff] any advertising, marketing and promotional activities conducted by the [defendant] in the Territory;” (7)  Clause 3.2: “In consideration of the [plaintiff]’s obligations set out herein, the [defendant] shall not, directly or indirectly, sell or export or permit or authorise the sale or export of the Products to customers in the Territory through any channels other than the [plaintiff]. …” (8)  Clause 4.5: “…, the [plaintiff] shall pay 10% of purchase price of the Products … upon the receipt of the [defendant]’s invoice and the [plaintiff] agrees to pay and settle the outstanding balance of the [defendant]’s invoices … within thirty (30) days of receipt of the Products by the [plaintiff].” (9)  Clause 7.1: “Subject to clause 7.2 herein, this Agreement … shall be valid for a period of ten (10) years. The [plaintiff] will target to achieve the purchase in aggregate US$1.8 million of Products in the fourth year of this Agreement.” (10)  Clause 7.2: “Either party hereto may terminate this Agreement without prior notice and having immediate effect in the following circumstances: (a)   if the other party does not cure any breach or default within thirty (30) days after written notification thereof;” In this decision, references to numbered clauses are to clauses of the Agreement. Plaintiff’s operation after Agreement 17.  Apart from the distribution and sale of the Products under the Agreement, the plaintiff does not appear to have any other business undertaking.  Such business was run by Ho herself who claims to have ceased all her other key business ventures in order to focus on developing and marketing the Brand.  18.  Ho was initially assisted by just one full-time staff whose primary duty was to attend to the accounts and orders and one part-time evening employee who had no involvement in the business side of the plaintiff’s operation and only helped Ho handle the plaintiff’s correspondence in English (including by email and WhatsApp) as Ho’s command of English is limited. 19.  In about May/June 2017, the plaintiff entered into a 3-year dealership arrangement (“Prince Dealership”) with Prince Jewellery Prince and Watch Company Limited (“Prince Jewellery”), a prominent retailer of luxurious watches and jewellery in Hong Kong.  Under the Prince Dealership, Prince Jewellery agreed to purchase a specified quantity of watches of the Brand from the plaintiff.  After the conclusion of the Prince Dealership, according to Ho, Prince Jewellery became the plaintiff’s major retail outlet, selling most of the watches it purchased from the defendant.  20.  Before the Prince Dealership, the plaintiff seemed to have made one-off arrangements with Prince Jewellery and others such as Wong and her husband’s company, Time Concept Holdings Limited (“Time Concept”), a brand management consultancy, on a project basis to market and promote watches of the Brand in Hong Kong.  (The arrangement with Wong’s said company in February 2017, however, came to a premature end on bad terms for different reasons depending on who one asks.) 21.  It was not until about mid September 2017 that the plaintiff recruited 3 marketing personnel, including a Marketing Manager (namely, Cheng) who is said to have extensive experience in promoting, and arranging high-end marketing events for, luxury watch brands. 22.  According to the plaintiff’s reckoning, the Plaintiff’s total purchases from the defendant up-to-date added up to US$12,046,967 (US$11,986,592 as at 29 September 2017, i.e. the date of the Termination) which, the plaintiff says, exceeded the projected sales target of US$1.8 million in the 4th year of co-operation under clause 7.1 by over 6 times and 3 years ahead of schedule.  The plaintiff’s purchases included the Billionaire watch which was first introduced into the market by the defendant in 2015 with a published retail price of US$18 million and which was sold at US$4.3 million by the defendant to the plaintiff who then resold it through Prince Jewellery just a few months after the Agreement. Dispute after Agreement 23.  Despite the volume of the plaintiff’s purchase, the parties soon got into difficulties in their collaboration. 24.  First, there was disparity between the defendant’s expectation as to how the plaintiff should promote and market the Brand and the Products in the Territory and account for the associated costs and expenses and the manner in which the plaintiff actually did so. 25.  It is the plaintiff’s case that, before the Agreement, the Brand was virtually unknown in the PRC and very rarely talked about in Hong Kong.  Ho has drawn my attention to the marketing campaigns and activities that the plaintiff arranged, and the publicity generated thereby, for the Brand since 2016: (1)  the display of prominent billboards at different prime locations in Hong Kong; (2)  the launch of joint tailor-made advertising campaigns with Prince Jewellery in February, April and June 2017; (3)  the attendance at, and organisation of, various charitable auctions and events in both Hong Kong and PRC by Ho; (4)  the placement of advertisements in mainstream media in Hong Kong; and (5)  the procurement of Poly Auction (Hong Kong) Ltd to place the Brand’s watches onto its Prestigious Watch Auction List for their 2017 Spring and Autumn auctions including the full page back cover and to include the Brand’s watch as the only timepiece on its massive billboard at the Hong Kong International Airport next to a painting that is worth over HK$100 million. 26.  On promotion and marketing, the parties have put in evidence numerous exchanges by email and WhatsApp by which the defendant (1)  reminded the plaintiff of the need for uniformity of its marketing efforts (including private events and dinners for connoisseurs) with those made by the defendant and its other distributors; (2)  urged the plaintiff to share marketing plans and budgets in advance for discussion and agreement with the defendant and to seek the defendant’s prior approval before participating in, or incurring expenses for, promotional activities; (3)  sought from the plaintiff details about marketing activities in which the plaintiff had participated or wished to participate and the expenses associated therewith; (4)  turned down specific promotional events put forward by the plaintiff; and (5)  asked and chased the plaintiff for a marketing activity report for events from January 2017. 27.  The defendant takes the view that the global presence of the Brand and the Products makes it important to co-ordinate the marketing campaigns and sales strategies of the defendant and its distributors all over the world to ensure that the materials put out, using the defendant’s intellectual property researched and developed at its own costs, are coherent and consistent with the image and quality of the Brand that the defendant seeks to promote.  To that end, the defendant expects its distributors to work closely with it on marketing and promotional matters and materials through regular reporting from the distributors to the defendant and prior discussion between the defendant and the distributors on issues concerning the timing, contents and costs of marketing and promotional materials, advertisements, campaigns and projects. The defendant was therefore anticipating from the plaintiff, as it does from its other distributors, marketing plans and reports with detailed information and budgetary estimates at regular intervals for discussion with the defendant and prior approval by the defendant, before implementation.  28.  However: (1)  The plaintiff does not consider itself bound by the Agreement to consult or coordinate with the defendant or seek the defendant’s prior approval before conducting any marketing activities. (2)  As stated above, the plaintiff did not engage any marketing personnel until the latter half of 2017.  It promoted the Brand and the Products, especially in the initial stage, largely by making use of Ho’s personal connections and relationships in the luxury goods market and by having her attended different marketing and promotional activities and functions where she would get to meet distinguished guests and VIPs, as and when opportunities arose. (3)  While the plaintiff did from time to time inform the defendant of its broad marketing plan and costs position, according to Ho, the plaintiff did so out of courtesy and in the spirit of good co-operation, rather than to honour any contractual obligation. (4)  When the voluntary provision of information was returned with more and more questions and requests for details and supporting documents from the defendant, with its limited manpower, the plaintiff could only respond to the defendant as and when Ho and its staff were free to do so, which explains why there were admittedly occasions when the defendant’s requests for details and documents regarding the plaintiff’s marketing activities remained unanswered. (5)  Further, according to Ho, the consequences of the plaintiff’s said approach to marketing and the nature of the promotional activities conducted or attended by the plaintiff, not all expenses were supported by invoices or receipts bearing references to the Brand or to the plaintiff, eg payments were made and official receipts were issued in Ho’s own name for many charitable events or auctions attended by Ho though she acted as representative of the Brand. 29.  These differences resulted in mutual dissatisfaction.  While the plaintiff saw the defendant as being unduly intervening in matters of marketing by the plaintiff when it had no contractual right to do so, the defendant became more and more dissatisfied with the plaintiff’s marketing style.  From the defendant’s point of view, the plaintiff (1)  saw itself as having a free hand in the promotion of the Brand and the Products in the Territory; (2)  had no coherent marketing strategy to speak of; (3)  only advised the defendant of marketing events in a piecemeal manner, often giving very short notice (or even no notice); and (4)  in any event provided very little basic information (such as the costs of the event or its relevance) to the defendant even when it did notify the defendant; (5)  often refused or failed to provide such information or any further details even when chased by the defendant; (6)  saw and treated the defendant’s requests for marketing reports and information as an annoyance.  30.  Second: (1)  The defendant says it also became concerned that the plaintiff was not adhering to its payment obligation under clause 4.5 so much so that the plaintiff owed the defendant more than US$4.5 million for more than 30 days at the time of the meeting to be mentioned in paragraph 33 below. (2)  The plaintiff denies owing any money to the defendant at the relevant time, saying that the 21 invoices issued by the defendant to the plaintiff between October 2016 and March 2017 had either been fully settled or not yet become due. (3)  Also, the plaintiff suggests that the defendant had waived the 10% deposit requirement by often not issuing an invoice therefor. 31.  Third, the defendant provided the plaintiff with the proforma monthly sales report used by the defendant’s distributors via Lam’s emails dated 30 December 2016 and 23 January 2017. However, the plaintiff failed to submit to the defendant any such monthly sales report, or otherwise provide the defendant with any sales figures.  While the defendant knew how much stock the plaintiff had purchased from it, it had no idea what sales turnover the plaintiff had actually achieved.  Without the sales figures, the defendant could not calculate the plaintiff’s net profit, which was required for the operation of clause 2.1(h) which obliged the plaintiff to spend no less than 10% of its net profit on marketing, which the defendant had to share equally with the plaintiff under clause 3.1(d).  (It was not until 9 October 2017 that the plaintiff sent the defendant a report on the Products that it had sold since the commencement of the Agreement.  The defendant was not satisfied with such report as it did not state the price at which each watch had been sold which, the plaintiff however retorts, was not required even in the proforma monthly sales report supplied by the defendant.) 32.  Fourth, in the midst of such differences, beginning from early 2017, the plaintiff proposed to enter into the Prince Dealership.  Ho had shown Lam a spreadsheet showing the proposed split of profits between the plaintiff and Prince Jewellery.  In response, Lam (who had consulted Mazzocchi) had expressed to Ho the view that the proposed terms were too harsh for the plaintiff and that it would be risky for the plaintiff to enter into such an arrangement at that early stage of its distributorship.  According to Mazzocchi, the plaintiff’s solution was to ask for greater financial support from the defendant in order to make the Prince Dealership work.  Meeting in March 2017 33.  The differences that developed after the Agreement culminated in a meeting between Ho and Mazzocchi (with Lam acting as interpreter) in late March 2017 in Geneva during BaselWorld 2017 (“March Meeting”).  34.  There is significant disagreement as to what was said or agreed (if at all) at the March Meeting. 35.  On one hand, the plaintiff claims that the parties reached what it calls the “March Agreement” whereby: (1)  The parties agreed on what the plaintiff calls the “Fixed Percentage Mechanism”, ie that instead of the fixed 5% mechanism provided for in clause 3.1(d), the defendant’s contribution to the plaintiff’s marketing expenses would be revised to and fixed at 10% of the plaintiff’s purchases from the defendant. (2)  Of this 10% contribution, 5% would be labelled as the defendant’s marketing contribution whilst the other 5% would be labelled as a bonus from the defendant to the plaintiff. (3)  The 10% deduction would be implemented immediately, and retrospectively, to all of the plaintiff’s purchases since 2016. (4)  The first deduction would be applied to all purchases made in 2016 up to the end of the first quarter of 2017, and thereafter the deduction would be applied after each quarter. (5)  In view of the Fixed Percentage Mechanism, the plaintiff would not be required to furnish to the defendant any details or documentary proof in relation to its marketing activities or expenses. 36.  On the other hand, according to Mazzocchi, no binding agreement was concluded at the March Meeting.  He merely told Ho that: (1)  The defendant would in principle be prepared to agree to an arrangement where it would allocate a sum equivalent to 5% of the plaintiff’s gross purchases from the defendant as the defendant’s contribution to the plaintiff’s marketing expenses, with the plaintiff contributing the same amount, provided that the defendant would receive receipts for all marketing expenses so it could be sure that it was paying for legitimate expenses. (2)  The defendant may further be prepared to give the plaintiff a bonus to be based on achievement of an annual sales target to be agreed and contingent on the defendant being provided with the final Prince Dealership agreement so as to give the defendant an idea of the quantity of watches likely to be sold thereunder to see if a bonus would be warranted and, if so, to fix the size of the bonus.  The main reason this bonus arose for discussion was that the plaintiff needed more credit from the defendant because its expected profit margin under the Prince Dealership was likely to be thin. 37.  It is not in dispute that, after the March Meeting, the plaintiff did not submit any receipts of its marketing expenses to the defendant until August 2017.  It is also common ground that the plaintiff has never provided the defendant with the agreement in respect of the Prince Dealership.[i] Escalation of dispute after March Meeting 38.  The plaintiff has adduced the correspondence between the parties after the March Meeting on the state of accounts between them, from which it appears that: (1)  The parties did proceed on the basis that the plaintiff was entitled to be credited with or to deduct from the price of its purchases from 2016 a 5% sum described as the defendant’s marketing contribution. (2)  Until early May 2017, any disagreement appeared to be focused upon whether the plaintiff was also entitled to be immediately credited with, or to immediately deduct, another 5% as a bonus, with the defendant maintaining the position that no bonus of any form would be allowed by its auditors before the year end financial results were known. (3)  On about 9 May 2017, the defendant softened over the deduction of the 5% bonus insofar as the years of 2016 and 2017 were concerned, but making it clear that there would be no advance bonus for 2018. (4)  The defendant budged in respect of a bonus for 2018 on 10 May 2017 by Lam’s WhatsApp message to Ho that “[Mazzocchi] agrees that we will also support you for 2018” and that “[a]s long as you are in business agreement with Prince, we will support you”. (5)  On about 10 July 2017, the defendant allowed the plaintiff to settle 4 invoices by netting off inter alia 10% of the plaintiff’s purchases for the second quarter of 2017. 39.  The plaintiff relies on the correspondence from April to early July 2017 as showing the repeated acknowledgment and implementation of the March Agreement by the defendant which, the plaintiff says, tends to support the existence of such agreement. 40.  On the other hand, the defendant explains the correspondence as part of its difficult effort in obtaining payment of long overdue invoices from the plaintiff.  The references to and deduction of a 5% marketing contribution and later a 5% bonus were made (i) on the assumption that the plaintiff would provide the information and material that the defendant needed to allow it to reach an agreement along the lines discussed at the March Meeting namely, information and documents concerning the plaintiff’s marketing expenses and the Prince Dealership agreement; (ii) under anxiety to obtain some payment from the plaintiff as soon as possible and (iii) under the pressure being put on Lam by Ho. 41.  Anyway, on 21 July 2017, the defendant sent to the plaintiff a statement of account which showed that the plaintiff owed the defendant the sum of US$1,949,751 and demanded payment.  This sum was arrived at by including, as unpaid, invoices previously settled by the plaintiff by adopting the Fixed Percentage Mechanism, ie with a 10% deduction. 42.  By Gomis’ email to Ho dated 15 August 2017, the defendant demanded the plaintiff to settle outstanding payment in the total sum of US$953,371.50.  43.  To disagree a little, Gomis’ email of 15 August 2017 ended with this statement: “As no report has been sent despite many mails requesting them to justify your expenses, no Marketing deduction has been applied on regular invoices.” 44.  In this regard, the defendant had since the March Meeting continued to press the plaintiff for marketing reports and documentary proof of marketing activities and expenses.  45.  On 15 August 2017, the plaintiff sent the defendant by email 3 documents respectively entitled “Marketing Activity Report (11/2016 – 05/2017)”, “Physical Resources for Promotion and Advertisement (estimated)” and “Human Resources for Promotion and Advertisement (estimated)” which together showed how marketing expenses totalling US$1,824,965 were spent. 46.  Updated versions of these 3 documents showing a revised total marketing expenses of US$1,850,975 were sent on 17 August 2017. 47.  Further revised versions giving total marketing expenses at US$1,712,520 were provided by the plaintiff to the defendant on 24 August 2017. 48.  Coming back to the question of payment, apart from the dispute over their state of account, beginning from early August 2017, the defendant pressed the plaintiff for full payment on all purchases before arranging delivery.  The plaintiff saw this as a departure from clause 4.5 whereas the defendant explains this as a protective reaction to the plaintiff’s failure to follow clause 4.5 and refusal to provide information concerning marketing plans and expenses which caused the defendant to gradually lose trust in, and good faith towards, the plaintiff. 49.  The plaintiff also perceived an increasingly slow, or lack of, response on the part of the defendant to the plaintiff’s operational needs, for example, when the plaintiff made enquiries about watches, placed orders or asked for support to the plaintiff’s marketing events etc, which the defendant denies. Meeting in late August 2017 50.  In late August 2017, Ho (accompanied by a Mr Terry Yeung as her interpreter) and Arabo met in Geneva.  Not surprisingly, the parties’ accounts of this meeting differ.  It is safe to say that no consensus was reached from either party’s point of view. Termination 51.  On 29 August 2017, Gomis sent Ho another email (“29.8.2017 Email”) demanding for payment of US$540,198.15.  As the 29.8.2017 was relied upon by the defendant as constituting the notice required by clause 7.2(a) in effecting the Termination pursuant to clause 7.2, I shall set out the whole of this email: “After discussion with Mr. Jacob, both watches will be shipped to you. My colleagues will provide you with the shipping documents as soon as possible. However, please wire USD 540’198.15 when you return: USD470’198.15 with regards to the open balance as per the statement discussed and approved yesterday with Mr. Jacob USD70’000 regarding the open balance of the Solar timepiece sn: YANG46 Thank you for your confirmation.” 52.  The sum of US$470,198.15 mentioned in this email is the Disputed Sum. 53.  The plaintiff did not pay the Disputed Sum, giving the reason that the plaintiff was entitled to deduct the same pursuant to the March Agreement (though, according to Mazzocchi, there was at one stage talks about Ho paying this amount from her personal account.  It is unnecessary to go into the parties’ competing explanations as to why this was not pursued). 54.  On 29 August 2017, the defendant effected the Termination.  In this regard, paragraphs 6(d), (e), 8, 9 and 10 of Deacons’ letter to the plaintiff read as follows: “6. We are instructed that: … (d) At a meeting at our client’s offices in Switzerland on 28 August 2017 attended by our client’s Mr. Jacob Arabo and your Ms. Ho, your Ms. Ho agreed on your behalf with our client that upon receipt and approval of supporting documents relating to your various marketing expenses, our client would grant credit of US$572,773.35 to you, leaving you within (sic) an open balance of US$470,198.15 which you would settle immediately. (e) Our client’s Mr. Gomis gave written notice on behalf of our client via an email to Ms. Ho on 29 August 2017 stating that you were to make payment of the outstanding open balance. … 8.  Notwithstanding further reminders from our client, including emails from Mr. Mazzocchi to your Ms. Ho dated 6 and 11 September 2017, no payment has been made.  In addition, despite reminders from our client, the further documentation an information concerning marketing expenses has also not been forthcoming at the time of writing. 9.  In light of your failure to make payment following Mr. Gomis’ email of 29 August 2017 reminding you of your default in payment, and in light of the fact that over 30 days have elapsed since Mr. Gomis’ email was sent, please treat this letter as notice on behalf of our client of termination of the Agreement pursuant to clause 7.2 of the Agreement. 10.  Further or alternatively, your failure to pay our client the sums owed pursuant to the Agreement despite repeated reminders amounts to a material breach of the Agreement, and our client accepts the breach and treats the Agreement as terminated as at the date of this letter.” 55.  The plaintiff maintains the position that it did not owe the defendant any money as at 29 September 2017: (1)  As at 29 September 2017, the plaintiff had purchased US$11,986,592 worth of stock from the defendant. (2)  Under the March Agreement, the plaintiff was entitled to have 10% of its purchases deducted and treated as the defendant’s contribution to the plaintiff’s marketing expenses, so that the plaintiff only had to pay 90% of US$11,986,592, ie US$10,787,932.80. (3)  By 29 September 2017, the plaintiff had already paid US$10,943,277.  That is to say, instead of owing the defendant money, the plaintiff should actually have a credit balance of US$155,344.20 (i.e. US$10,943,277 less US$10,787,932.80). 56.  The plaintiff is convinced that the defendant was motivated to terminate the Agreement by its desire to bypass the plaintiff and directly deal with Prince Jewellery so as to reap the rewards of the plaintiff’s marketing efforts and maximise its profit. Post-writ events Payment of Disputed Sum under protest 57.  Upon the commencement of this action, on 24 October 2017, the plaintiff tendered payment of the Disputed Sum “under protest” “solely to prevent [the defendant] from manufacturing any further artificial complaint in its attempt to unilaterally and unfairly repudiate the Agreement” and with the caveat that it would claim for the return of the money with interest in this action. Voluntary undertaking by defendant until 1 December 2017 58.  At the plaintiff’s request by RSRB’s letter dated 24 October 2017 to Deacons, the defendant by Deacons’ reply dated 27 October 2017 to RSRB gave the plaintiff an undertaking (“Undertaking”) in terms of paragraphs 2 to 4 of the Endorsement of Claim until 1 December 2017. Paragraphs 2 and 3 were the same as the Interim Injunction Order.  Paragraph 4 required the defendant not to do any act which would cause or procure a breach or breaches by the plaintiff’s dealers, distributors or retailers (including but not limited to Prince Jewellery) of agreements already made or to be made between the plaintiff and such retailers for the distribution or sale of the Products anywhere within the Territory.  The defendant agreed to undertake in terms of paragraph 4 but, to “ensure compliance” by the defendant, requested for copies of the agreements which the defendant was required not to cause a breach, in particular, the Prince Dealership agreement. 59.  The request for the Undertaking appears to have been prompted, at least partly, by Ho learning from Prince Jewellery that Lam had on 18 October 2017 visited Prince Jewellery’s main store and suggested to Prince Jewellery: (1)  that the Agreement had already been terminated as the plaintiff had failed to pay a sum of around US$500,000; (2)  that the defendant was eager to maintain a business relationship with Prince Jewellery and that Prince Jewellery could, from then on, directly order watches from the defendant; and (3)  that the defendant would like to continue cooperation with Prince Jewellery and did not want to cease its Hong Kong business. 60.  The defendant agrees that Lam informed Prince Jewellery executives during a meeting on 18 October 2017 that the Agreement had been terminated (without explaining the reasons behind the termination) and that Prince Jewellery could contact him if they needed assistance (and not that watches could be ordered direct from the defendant).  According to the defendant, subject to the resolution of this action, its plan is to operate in the Territory via a distributorship arrangement as in other regions for strategic reasons. 61.  The Undertaking, however, did not ease the tension between the plaintiff and the defendant. 62.  To begin with, the defendant considers that no undertaking was ultimately effected in terms of paragraph 4 of the Endorsement of Claim due to the plaintiff’s refusal to provide copies of the relevant agreements which the defendant was to undertake not to cause a breach (particularly the Prince Dealership agreement). 63.  Further, it is the plaintiff’s case that the defendant had breached the Undertaking right after it was given by selling directly to Prince Jewellery,which the defendant disputes.  More particularly: (1)  First, on 27 October 2017, the defendant (through Wong) sent Prince Jewellery drawings of a special counter to be set up at the Prince Tower store of Prince Jewellery for the sale of the Products which, the plaintiff says, suggests that the defendant had been taking steps to directly supply the Products to Prince Jewellery.  The defendant argues that the supply of drawings did not fall within the Undertaking.  It has no intention of selling direct to Prince Jewellery.  The counter was to showcase the Products.  Such showcase project was arranged between the plaintiff, the defendant and Prince Jewellery before the Termination.  The plaintiff had asked the defendant to supply the drawings to Prince Jewellery but the defendant had not yet done so.  The defendant asked Wong to do so as Prince Jewellery was accustomed to dealing with Wong.  The plaintiff does not accept this explanation for a number of reasons.  First, it denies having asked the defendant to supply any drawings to Prince Jewellery.  Second,the defendant has been aware of the breakdown of relationship between the plaintiff and Wong and should therefore not have instructed or allowed Wong to liaise with Prince Jewellery on the plaintiff’s behalf. (2)  Second, the defendant’s website no longer shows the plaintiff as the distributor of the Brand in the Territory but mentions the name and contact details of Prince Jewellery insofar as the Hong Kong market is concerned. (3)  Third, according to Ho, Prince Jewellery had in early November 2017 informed the manager in charge of the luxury goods sector of the Suncity Group in Macau that Prince Jewellery was the “main distributor” (總代理) of the Brand. (4)  Fourth, on around 14 November 2017, the shopkeeper of the Tsim Sha Tsui store of Prince Jewellery informed a friend of Ho that Prince Jewellery had become the main distributor of the Brand and that there would soon be a boutique opened for the Brand in Shanghai at Shanghai Xiantiandi (上海新天地). (5)  Fifth, Cheng learnt on 20 and 21 November 2017 that an advertisement for the Brand had been placed (but not by the plaintiff) with “Spiral” (游絲腕錶雜誌), one of the leading watch magazines published and circulating in Hong Kong, with the cover of the January 2018 issue featuring the watch of the Brand referred to as “九星連珠". Defendant’s investigation of claims for marketing expenses submitted by plaintiff 64.  The 3 tranches of marketing expenses reports provided by the plaintiff to the defendant on 15, 17 and 24 August 2017 were accompanied by some receipts.  However, the defendant considered such documents inadequate in supporting the expenses claimed and continued to press for documentation proving that the marketing expenses that the plaintiff claimed to have incurred were legitimate, even after the commencement of this action.  The solicitors’ correspondence ended with RSRB’s letter dated 7 December 2017 reiterating that the plaintiff has no obligation to provide documentation concerning marketing expenses. 65.  According to Mazzocchi, having received no further information from the plaintiff concerning its claimed marketing expenses, the defendant and its solicitors have carried out their own investigations, including making inquiries with various third parties involved in the events or matters concerned, in an attempt to determine the legitimacy of the marketing expenses claimed by the plaintiff.  66.  The defendant presents the results of its investigation in the form of a 15-page table included in exhibit “MM-1” to Mazzocchi’s affidavit dated 14 December 2017.  In short, the defendant concludes that some of the expenses have not been incurred at all or have been exaggerated and others appear to be dubious at best.  Mazzocchi has in paragraph 86 of his affidavit highlighted, and explained why, certain claims are problematic.  In summary, according to the defendant: (1)  Under claims 1, 3, 19 and 28 (Part 2), the expenses claimed as marketing expenses were in fact paid or incurred by the defendant itself or third parties including Prince Jewellery, and not the plaintiff; (2)  Under claims 2, there is no evidence of promotion of the Brand by the blogger said to have been paid commission of US$51,000 for 6 months. (3)  Under claim 4, there is no evidence of the donation in question being referable to the Brand or the Products. (4)  Claims 5, 9, 11, 13 and 38 were supported only by invoices issued by the plaintiff itself and not any evidence of actual payment by the plaintiff. (5)  Under claims 6, 16 and 34, the expenses had been grossly exaggerated or not actually been paid by the plaintiff.  Further, claims 16 and 34 were in respect of participation in an event called Hainan Rendez-Vous which the defendant had told the plaintiff not to proceed with. (6)  Under claims 7 and 12, the invoices were issued by a business called “Watch & Jewellery” operated by a company wholly owned by Ho on dates after the operation of such business had ceased according to its business registration records. (7)  Claims 17 and 34 duplicates the same expenditure. (8)  Claim 32 was in respect of works that had not taken place. 67.  The defendant sees a strong case that many of the plaintiff’s claimed expenses were extremely problematic at best or disingenuous or fraudulent at worst.  Claims 1, 2, 3, 4, 6, 7, 12, 16, 17, 19, 28 (part 2), 31, 32 and 34 (leaving out claims 5, 9, 11, 13 and 38 which were unsupported by any evidence of actual payment by the plaintiff) total about US$896,556.99.  It is the defendant’s case that such discoveries about the plaintiff’s claims for marketing expenses have made it impossible for the defendant to trust the plaintiff. After Interim Injunction Order Impasse 68.  Following the grant of the Interim Injunction Order, the parties did for a while entered into negotiation of terms for purchase of the Products by the plaintiff from the defendant outside of the Agreement.  While the parties could agree on payment by the plaintiff of 50% of the purchase price upfront and 50% within 30 days, there was eventually no transaction (save for the sale and purchase of 2 Astronomia Solar watches for the plaintiff to honour pre-existing orders) because the parties could not agree on giving the plaintiff the option of returning some or all of the watches and setting them off against the 50% balance payable and, if appropriate, even seeking a refund from the defendant.  The defendant says it did not want to run the risk (which it considered real) of finding itself with few or no sales and holding excess stock of unsold watches should the plaintiff elect to return most or all of the watches it received. Plaintiff’s complaint of breaches of Interim Injunction Order by defendant 69.  After the grant of the Interim Injunction Order, there have been 3 advertisements published for the Brand, the first one in the “World Wrist Watch Annual Book 2017/18” published on around 30 November 2017; the second one in the “TimeSquare Watch Calendar 2017-18” published on around 21 December 2017; and the third one in “Spiral” published on 14 January 2018. 70.  According to Mazzocchi, arrangements for the first and second-mentioned advertisements had been made before 24 November 2017 and could not be undone. 71.  The plaintiff makes the point that the placement of these advertisements was plainly an act of marketing in breach of the Undertaking as well as the Interim Injunction Order and the defendant could and should have cancelled or recalled the advertisements since 27 October 2017 (when the Undertaking was given) or 24 November 2017 (when the Interim Injunction Order was made) but chose not to do so. 72.  Paragraphs 16 to 21 of Ho’s 3rd affirmation raised the third-mentioned advertisement.  In short, according to inquiries by the plaintiff made with the managing editor of “Spiral” on 21 November 2017 (see paragraph 63(5) above), the product photoshoot for the January cover had not yet been arranged, nor has the magazine been provided with any product information for the featured cover story. Ho therefore surmised that the product photoshoot was arranged and the product information was supplied to the magazine after the Interim Injunction Order.  73.  In answer, according to the 2nd affidavit of Wong (who was the person liaising with “Spiral” on the January 2018 issue cover feature story on the Brand since late October or early November 2017), the article was written on the magazine’s own initiative in exercise of the freedom of the press despite having been told of the Interim Injunction Order against the defendant. 74.  By Cheng’s 2nd affirmation, the plaintiff seeks to show that the editor-in-chief of “Spiral” has confirmed to Cheng that the magazine did not publish the advertisement on the Brand for free; that the magazine had no reason to publish such advertisement but for Time Concept’s insistence; and the magazine required full payment upfront from Time Concept before confirming the placement of the advertisement and that such editor has confirmed these points by a letter dated 21 February 2018 to RSRB. 75.  There are also miscellaneous complaints by the plaintiff, for example, about an invitation issued by the defendant in early December 2017 to various Hong Kong media to attend the annual “Salon International de la Haute Horlogerie Genève”, a major international watch-exhibition, in mid-January 2018 in Geneva;[ii] and the use of Taiwan as a transit for sale into Hong Kong via the grant of the Taiwan distributorship to a company of Wong’s husband, etc. Miscellaneous matters 76.  As said earlier, the affidavit evidence before me raises numerous factual disputes.  For example, there are issues as to whether the plaintiff had sought the defendant’s prior consent to the opening of a Brand boutique in Macau, as required by clause 2.3, and whether the plaintiff has as requested by the defendant abandoned the plan to open such boutique; whether the plaintiff had the defendant’s authority to represent itself as “Jacob & Co China”.  It is unnecessary for me to go into these other matters. PRINCIPLES FOR GRANT OR REFUSAL OF INTERLOCUTORY INJUNCTIONS 77.  The legal tests governing the grant or refusal of interlocutory injunctive relief are well settled.  I start with Lord Diplock’s speech in American Cyanamid Co v Eithicon Ltd [1975] AC 396 (HL) at 407F-409D which, as explained by the Hong Kong Court of Appeal in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118, per Ribeiro JA (as he then was) at [28]-[32], guides the court to ask the following questions in deciding whether it is just or convenient to grant an interlocutory injunction: (1)  whether there is a “serious question to be tried” which means that the claim must not be frivolous or vexatious; (2)  if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial; (3)  if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and (4)  if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies. 78.  The demonstration of a serious issue to be tried is not a high threshold.  All that is required is the plaintiff has prospects of success which, in substance and reality, exist.  Odds against success do not defeat him, unless they are so long that the plaintiff can have no expectation of success, but only a hope:Hong Kong Civil Procedure 2018, Volume 1,§29/1/10. 79.  In considering the adequacy of damages and then weighing the balance of convenience: (1)  If damages would be an adequate remedy for the plaintiff, and the defendant would be in a position to pay them, no injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage. (2)   If the defendant would be adequately compensated by the plaintiff’s undertaking as to damages and the plaintiff would be in a position to pay them, there would be no reason on this ground to refuse the injunction. (3)   Where the question of balance of convenience arises: (a) Where other matters are evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo. (b) The extent to which the disadvantages to each party would be incapable of being compensated if he succeeds at the trial is always a significant factor in assessing where the balance of compensation lies. (c) If the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced on application.  This however should be done only where it is apparent upon the facts disclosed by evidence to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party. See Fellowes & Son v Fisher [1976] 1 QB 122 CA at 137 (Browne LJ as he then was). SERIOUS ISSUE TO BE TRIED 80.  The broad questions arising on the evidence and in submission as to whether is a serious issue to be tried in favour of the plaintiff are: (1)  whether the Termination was valid; (2)  even if the Termination was valid, whether the plaintiff has prospect of obtaining the permanent injunction sought. Validity of Termination 81.  On the validity of the Termination, the plaintiff says that it was wrongful for these reasons: (1)  The demand for the Disputed Sum was unfounded.  By virtue of the March Agreement, the plaintiff did not owe the defendant any money as at 29 September 2017. (2)  Even if the plaintiff did owe the defendant the Disputed Sum (or any sum) as at 29 September 2017, the defendant nevertheless could not terminate the Agreement whether pursuant to clause 7.2(a) or under the common law.  More particularly: (a)  Clause 7.2(a) entitles the innocent party to immediately terminate the Agreement without prior notice if“the other party does not cure any breach or default within thirty (30) days after written notification thereof”.  A unilateral notice served under or pursuant to a contractual right must be clear and unambiguous (see Mannai Ltd v Eagle Star Life Assurance [1997] AC 749 at 768G (Lord Steyn); Stannard & Capper: Termination for Breach of Contract(2014), §§8.07–8.09. A “notification” by the defendant for the purpose of clause 7.2(a) should therefore clearly set out (i) the basis for alleging that the plaintiff was in breach; (ii) that the plaintiff is given 30 days to remedy the breach; and (iii) that if the plaintiff does not remedy the breach, the defendant would terminate the Agreement without further notice.  The 29.8.2017 Email, relied upon by the defendant as constituting the written notification required by clause 7.2(a), fell short of such requirements so that the defendant had omitted to serve on the plaintiff any written notification within the meaning of clause 7.2(a) to cure the non-payment of the Disputed Sum. (b) The defendant has by the termination provisions of the Agreement including clause 7.2(a) contracted out of its common law right to terminate the Agreement by acceptance of a repudiation. (c)  Alternatively, the existence of clause 7.2(a) providing for a contractual right to terminate only where the party in default fails to remedy the breach within a certain period of time from his being notified in writing constitutes as an exception to the general rule that the provision of a contractual right of termination does not exclude the right to terminate at common law for breach of condition so that the defendant purporting to serve such a notice must at least give the plaintiff a reasonable opportunity to comply with it.  In support, Mr Horace Wong SC (leading Mr Norman Nip and Mr Thomas Wong) refers to and relies on Stannard & Capper, supra, §8.23.  The first time the defendant can be said to have served a written notification in respect of the non-payment of the Disputed Sum was when Deacons issued their letter of 29 September 2017. 82.  While the defendant has strenuously refuted the plaintiff’s said case on the invalidity of the Termination for non-payment of the Disputed Sum in evidence, counsel for the defendant have not wasted time to contradict this part of the plaintiff’s case in submission (of course, without prejudice to the defendant’s right to do so at trial).  This is wise in my view.  Given the relatively low threshold for a serious issue to be tried and given the nature of the dispute about, and the state of the evidence on, the March Meeting and the March Agreement, it would be impractical to expect the court to find no serious issue to be tried as to whether the defendant could terminate, and had validly terminated, the Agreement for non-payment of the Disputed Sum. 83.  Instead, the defendant invites the court to hold that this is no serious issue that the plaintiff will succeed in its claim for wrongful termination of the Agreement or for a permanent injunction. More specifically: (1)  The plaintiff has provided the defendant with fraudulent, bogus or exaggerated claims for marketing expenses to attempt to extract payment from, or deny payment due from it to, the defendant.  Such dishonest conduct constituted a repudiation of the Agreement.[iii] (2)  The defendant was entitled to, and did by Deacons’ letter of 29 September 2017, exercise its common law right to terminate the Agreement. (3)  Even if the Termination could not be justified on this alternative ground, the plaintiff and the defendant have now fallen out irretrievably.  The parties are no longer able, and do not wish, to work together any further.  There is thus no prospect of the plaintiff obtaining the permanent injunction sought as its effect would be to either compel hostile parties to work closely for a long period or to force the defendant out of the Mainland, Macau and Hong Kong markets for the duration of the Agreement. 84.  Dealing first with the allegation that the plaintiff has made false marketing expenses claims, given the serious nature and materiality of the allegation, I have taken care in reviewing the defendant’s bases and evidence for challenging the veracity of the claims mentioned in paragraph 66 above.  And I note that the problems identified in respect of some claims do prima facie appear to be supported by direct objective evidence (e.g. claims 7 and 12 by “Watch & Jewellery”’s public business registration record which shows a date of cessation of business before the dates of the supporting documents supposedly issued by it).  Where the defendant has to rely on information from third parties, the relevant inquiries were made by Deacons’ solicitor and trainee solicitor, Ms Cathy Tsz Yan Wu and Ms Chan Tsz Wai Michelle, who verified their inquiries and the results thereof on oath.  85.  In contrast, save for the claim numbered 4 which concerned a donation of RMB600,000 (or US$90,281.22) to the China Charity Foundation,[iv] Ho has not in her 35-page long 2nd affirmation filed on 5 January 2018 dealt with, in substance, the other marketing expenses claims challenged in paragraph 86 of Mazzaocchi’s affidavit (as summarised in paragraph 66 above) notwithstanding that her 2nd affidavit was made to respond to Mazzocchi’s affidavit.  86.  On the other claims, there is no specific contradictory evidence.  Indeed, it is worthy of note that Ho has not even once made express reference to paragraph 86 of Mazzocchi’s affidavit.  The court is left with these general statements in paragraph 3 of Ho’s 2nd affirmation: “I have been provided with, and have considered, a Chinese translation of the Affirmation of Maurice Mazzocchi (“Mr. Mazzocchi”) and note that the same contains numerous unfounded and unsubstantiated allegations made against both the Plaintiff and myself.  I have been advised and understand that it is unnecessary for me or the Plaintiff to respond to each and every of such allegations, and to the extent that there is / are allegations that I have not specifically responded and/or objected to hereinbelow, the same shall not be construed as an admission by me or the Plaintiff.” 87.  The defendant’s allegation of submission of false marketing expenses claims by the plaintiff has likewise received little attention in the plaintiff’s written submission though Mr Wong SC has in his oral submission in court attacked the quality of the defendant’s evidence on this allegation as being “filmsy”, “based on hearsay from unidentified sources” etc. 88.  I would not describe the defendant’s allegation that the plaintiff has made false marketing expenses claims as “unfounded” or “unsubstantiated” on the present state of the evidence.  I repeat paragraph 84 above.  The plaintiff has not provided the court with any material of substance to question the defendant’s evidence in this connection. 89.  While the court hearing an interlocutory application on affidavit discourages parties from dwelling incessantly on disputes of fact that cannot be resolved on paper, for the purpose of demonstrating a serious issue to be tried of a factual nature as the threshold for the grant of an interlocutory injunction, of which the question whether the plaintiff submitted to the defendant claims for marketing expenses that were false is one, it is in my view insufficient for the plaintiff to just barely deny the defendant’s allegation and expect the court to be prepared to assume that it would at the trial be in a position to adduce some substantive evidence that might tend to give credence to its denial.  In short, a serious issue to be tried need to be raised / dismissed by concrete evidence, not just a bare allegation or denial. 90.  This is particularly so in the instant case.  The marketing expenses were said to have been incurred, and the claims therefor were made, by the plaintiff.  The submission of false marketing expenses claims is a serious charge.  The plaintiff should do (and should be able to do) more to support such claims than just making the bare and general denial in paragraph 3 of Ho’s 2nd affirmation. 91.  Hence, while being mindful that it is not the court’s function in this type of application to conduct a mini-trial on affidavits, I am entitled to doubt whether the evidence placed before me discloses a serious issue that the plaintiff has submitted false marketing expenses claims to the defendant.  (Out of abundance of caution and for the avoidance of doubt, I am not making any final finding of fraud or dishonesty against the plaintiff.  I am merely assessing the sufficiency of the evidence for the threshold question before me.) 92.  I do not agree with Mr Wong SC that the issue whether the plaintiff has made false claims for marketing expenses is a red herring because the March Agreement dispensed with the need for the plaintiff to submit documentary proof for marketing expenses in order to claim contribution towards such expenses from the defendant.  On the plaintiff’s own case, the March Agreement (even if made) would not affect the plaintiff’s obligations under clause 2.1 including the duty under clause 2.1(h) to spend no less than 10% of its net profit on marketing and promoting the Products.  I find it hard to see how the defendant could monitor the plaintiff’s performance of this duty unless it was put in the position to know and verify, inter alia, the amount spent on marketing by the plaintiff. 93.  In any event, the plaintiff did submit information on its marketing expenses to the defendant in August 2017.  It must be implicit that the plaintiff presented such information to be true and correct. 94.  Leaving aside claim 4 which Ho has dealt with, the submission of the other false marketing expenses claims, especially at the scale said to have been discovered by the defendant, would in my opinion amount to a repudiation of the Agreement by the plaintiff, more particularly, of its duties under clause 2.1(c) to act loyally and faithfully towards the defendant in relation to its business under the Agreement and to conduct such business in an orderly and business-like manner under clause 2.1(d).[v] 95.  However, the defendant did not mention or rely on the plaintiff’s repudiation by submission of false marketing expenses claims in effecting the Termination, from which fact the following questions are raised: (1)  whether the defendant retains the common law right of termination by acceptance of the plaintiff’s repudiation, it being suggested that the defendant has contracted out of such right by agreeing to the contractual termination provisions in the Agreement (i.e. clauses 7.2 to 7.4);[vi] and (2)  whether the defendant can now rely on the plaintiff’s repudiation by submission of false marketing expenses claims when it did not use such ground to effect the Termination. 96.  On the first question, the common law right by one contractual party to terminate the contract by acceptance of the other party’s repudiation is presumed not to be excluded unless there are clear, express and unambiguous words to that effect. See Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717G-H (Lord Diplock); Stannard & Capper, supra, §8.19. 97.  In the present case, the contractual termination provisions clearly contain no such “clear”, “express” or “unambiguous” words and therefore do not displace this presumption. 98.  For the sake of completeness, as stated above, Mr Wong SC argues, in the context of the Termination for non-payment of the Disputed Sum being invalid, that the existence of a contractual right to terminate only where the party in default fails to remedy the breach within a certain period of time from his being notified in writing, such as clause 7.2(a), constitutes as an exception so that the defendant must either serve notice or at least give the plaintiff a reasonable opportunity to remedy the breach.  In support, Mr Wong SC refers to the following underlined statement in Stannard & Capper, supra, §8.23 which I set out in full for proper context: “As has been seen, the exercise of a common law right of termination requires no more than the doing of some act inconsistent with the continuation of the contract; no actual notice of termination need be served on the party in default, still less a notice in any particular form. There is nothing to prevent the parties to a contract from drafting an express right of termination in such terms, but more often, as previously seen, the exercise of such rights requires at least the giving of notice to the party in default, and quite possibly the chance to remedy the breach as well. The question then arises of whether a party who serves such a notice can then turn round and rely on his or her common law rights. In principle, the law does seem to allow this. In L Schuler AG v Wickman Machine Tool Sales Ltd the contract gave the defendant the sole selling rigths in relation to the claimants’ machinery. The contract further provided: (1) a clause described as a ‘condition’ stating that the defendant should send representatives to key customers on a weekly basis, and (2) a clause allowing termination in relation to ‘material’ breaches which the defendants failed to remedy within sixty days. Following numerous breaches of the former, the claimants sought to exercise their right of termination under the letter, and when this was rejected by the arbitrators sought to argue that in any event they could terminate for breach of condition as common law. In the event it was held by the House of Lords that the term in question was not a condition at all, but there was no suggestion that if it had been the common law right of termination would have been excluded merely by the purported exercise of the contractual right. However, an innocent party who serves a notice of this sort must at least give the party in default a reasonable opportunity to comply with it; and to that extent the exercise of the contractual right will exclude the common law right. If, however, the attempt to invoke the express right is unsuccessful, there is nothing to stop the innocent party then falling back on the common law right.” 99.  I have 2 observations: (1)  The learned authors have not supported the underlined statement with authority. (2)  Anyway, I do not understand them to be saying that notice must be served and an opportunity to remedy given whenever there is a contractual provision for termination upon lapse of a notice to remedy.  As I read it, the point that is being made is that if notice is indeed served (and therefore the contractual right of termination is invoked), a reasonable opportunity for compliance should be accorded.  In this case, the defendant did not serve upon the plaintiff any notice in respect of the false claims for marketing expenses. 100.  I am also inclined to agree with Mr Yu SC that the termination provisions in the Agreement would be inapplicable, as they did not cater, to a repudiation by the submission of false marketing expenses claims.  Take clause 7.2(a).  Such dishonest conduct, once committed, was not something capable of cure as the damage (loss of trust, confidence and good faith) was done and cannot be undone.  See L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 249G-250D (Lord Reid); Stannard & Capper, supra, §§8.14 to 8.15. 101.  To conclude, the defendant has not lost its common law right of termination. 102.  Turning to the second question, a party who terminated a contract for a wrong or inadequate reason or no reason at all may rely on another valid reason to justify the termination, even if he did not know of the valid reason at the time of termination, so long as (a) the valid reason existed at the time of the termination and could not have been put right by the counter-party and (b) the terminating party is not precluded by waiver or estoppel from relying on the valid reason.  See Boston Deep Sea Fishing and Ice v Ansell (1888) 39 Ch D 339 at 352 (Cotton LJ) and 364 (Bowen LJ); British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 71-72 (Lord Sumner); Heisler v Anglo-Dal Ld [1954] 1 WLR 1273 at 1278 (Somervell LJ); Chitty on Contracts (32nd Ed., 2015), §24-014. 103.  In the present case: (1)  The plaintiff submitted the claims for marketing expenses in August 2017 before the Termination on 29 September 2017. (2)  I have already indicated in paragraph 100 above my view that a repudiation by the submission of false marketing expenses claims was not capable of remedy.  I certainly do not think it is an answer for the plaintiff to say in paragraph 39.2(b) of its written submission that it could simply have foregone any claim for marketing expenses which the defendant did not find satisfactory. (3)  There can be no suggestion that the defendant has waived or is otherwise estopped from relying on, the dishonest conduct. Prospect of permanent injunction 104.  The basis now raised by the defendant against the prospect of a permanent injunction in the terms sought by the plaintiff (i.e. irretrievable breakdown of relationship and complete loss of mutual trust confidence and good faith between parties to a contract the performance of which requires co-operation) did not seem to arise in Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361; Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349; and Tech Garden Asia Ltd v Yuneec International Co Ltd, HCMP 2421/2015, unreported (Madam Justice Bebe Chu on 20 November 2015), which are relied upon by the plaintiff in support of the grant of an interlocutory injunction on the bases that it would be difficult to quantify the profits that an innocent distributor like the plaintiff would have made had the distribution agreement subsisted and that the defaulting supplier would otherwise be left to take advantage of its breach and enjoy the fruits of the time, effort and money expended by the distributor in building up the market. 105.  In support, Mr Yu SC has drawn my attention to the following authorities: (1)  Vertex Data Science Ltd v Powergen Retail Ltd [2006] 2 Lloyd’s Rep 591 at [5], [36]-[46] (Tomlinson J) in which an interlocutory injunction was sought to restrain the defendant from terminating an outsourcing contract; (2)  Atlas Steels (Australia) Pty Ltd v Atlas Steels Ltd (1948) 49 SR (NSW) 157 at 158, 161-167 (Sugarman J) in which the plaintiff sole distributor applied for an interlocutory injunction to restrain the defendant supplier from breaching the distributorship agreement; (3)  Ericsson AB v EADS Defence & Security Systems Ltd [2010] BLR 131 at [43]-[47] (Akenhead J) in which an interlocutory injunction was applied for to prevent the defendant from terminating a contract to develop and supply software; and (4)  Astor Electronics Pty Ltd v Japan Electron Optis Laboratory Co Ltd [1966] 2 NSWR 419 at 428 (MacFarlan J), in which a distributor applied for an injunction to restrain a supplier from selling its goods otherwise than through the distributor. 106.  In all such cases, the court refused the application because it would be inappropriate as a matter of policy to grant injunctive relief which would have the effect of compelling parties between whom mutual trust and confidence had broken down to work together, especially under a contract that requires a degree of co-operation and mutual understanding to carry out. 107.  The same consideration seems applicable to this case. 108.  The affidavit evidence speaks for the present dysfunctional relationship between the plaintiff and the defendant, as does the deadlock after the Termination. 109.  Mr Wong SC seeks to distinguish these authorities with reference to the nature and contents of the Agreement and the parties’ relationship thereunder.  However, on my reading, the Agreement provides for, not just the mechanical sale and purchase of the Products between the parties thereto, but also the promotion of the Brand and the Products by the plaintiff in the Territory with the defendant’s support in different aspects; the use of the defendant’s intellectual property by the plaintiff; the regular supply of general, business and sales information by the plaintiff to the defendant; the opening and maintenance by the plaintiff of flagship stores and/or boutiques for the Brand and the Products in the Territory; the provision of training, updated product information, technical support and “value added” services on the Product by the defendant to the plaintiff, etc.  In short, the performance of the Agreement would call for a significant degree of co-operation and mutual understanding between the parties, as I have gleaned from the constant correspondence by email and WhatsApp before the Termination. 110.  Mr Wong SC then suggests that the Interim Injunction Order has been deliberately couched in terms that would not compel the defendant to sell any Products to the plaintiff.  This may be correct literally.  However, taking a realistic view, the Interim Injunction Order, if continued (or a permanent injunction in the same terms, if granted) would have the practical effect of forcing upon the defendant a choice between dealing with the plaintiff with whom it does not get along and in whom it says it has completely lost trust and confidence and abandoning the markets in the Territory which are agreed by all to be full of commercial potentials.  Indeed, I note that the interlocutory injunction sought and refused in Astor Electronics Pty Ltd v Japan Electron Optis Laboratory Co Ltd was similar in terms to the Interim Injunction Order. 111.  For these reasons, there would at least be very respectable argument against the grant of the permanent injunction sought even if the Termination should be held to be wrongful. ADEQUACY OF DAMAGES TO PLAINTIFF 112.  The plaintiff’s case on inadequacy of damages to it rests primarily on the premise that it would be difficult to quantify the profits that it would have made had the Agreement subsisted, particularly given the facts that the Agreement was in its first year of execution with 9 more years to run; the plaintiff’s efforts in promoting and marketing the Brand and the Products in Hong Kong have just begun to bear fruit; and that the plaintiff has yet to roll out its marketing plans for the markets in Macau and the PRC, the potentials of which have yet to be tested. 113.  First, on legal principle, I have already dealt with Mr Wong SC’s authorities in support of the grant of an interlocutory injunction in the terms of the Interim Injunction Order on such basis in paragraphs 104 to 111 above. 114.  Second, if damages would for this reason not be an adequate remedy for the plaintiff, the corollary, viz that damages would not be an adequate remedy for the defendant, would also be true.  In this regard, I do not see why the defendant should, as submitted by the plaintiff, be necessarily confined to its sales figures or profit margins for the years from 2014 to 2016, which were achieved by direct sales without any local distributors or any large-scale or sustained marketing and promotion within the Territory. 115.  Third, there is some force in the defendant’s observation that the plaintiff has neglected to disclose evidence concerning its sales, expenses and profits during the subsistence of the Agreement.  It has also refrained from producing the Prince Dealership agreement.  There is no evidence, other than Ho’s assertion, that the plaintiff has turned a profit or that it will do so in the future. 116.  Lastly, as noted by the plaintiff, the Interim Injunction Order does not have legal effect in compelling the defendant to sell any Products to the plaintiff (see paragraph 110 above).  Hence, there is a possibility that the plaintiff would continue to suffer loss of profit notwithstanding the continuation of the Interim Injunction Order.  Indeed, as stated above, after the Interim Injunction Order was made, the plaintiff has only been able to procure the defendant to sell 2 watches to it. 117.  Although there is some reference that the defendant is a foreign company, there is no suggestion or evidence that an award of damages for breach of the Agreement would not be enforceable in Switzerland or anywhere else where the defendant’s assets can be found. 118.  It is unnecessary to deal with the plaintiff’s other argument based on loss of goodwill and reputation (which it says cannot be compensated with damages) at length.  While Ho may enjoy goodwill and reputation in the luxury goods market (which the defendant disputes to the extent of saying that Ho’s expertise appears to be in grey market trading), I agree with Mr Yu SC that it is the plaintiff’s (and not Ho’s) goodwill and reputation that is relevant here.  The plaintiff appears to have been acquired by the plaintiff for the specific purpose of entering into the Agreement.  There is no suggestion or evidence that the plaintiff itself has any goodwill or reputation of its own in the fashion/luxury goods industry (both before and after the Agreement) or that it has any plans to carry on other businesses in the industry in future.  On the available evidence, it seems questionable whether the plaintiff itself has any or any significant goodwill or reputation so as to suffer loss of the same.  See: Maldives Airports Co Ltd v GMR Male International Airport Pte Ltd [2013] 2 SLR 449 at [57] (Menon CJ). ADEQUACY OF DAMAGES TO DEFENDANT 119.  In contrast, I see a real risk that damages would not be an adequate remedy to the defendant because there is doubt as to whether the plaintiff is good for damages. 120.  Before I elaborate on this, I should mention Mr Wong SC’s submission that it is difficult to see how the defendant will suffer any (or any substantial) loss if the Interim Injunction Order turns out to have been wrongly granted because it will not restrain the defendant from continuing to do business in the Territory through the plaintiff.  In support, reference is made to Madam Justice Bebe Chu’s judgment in Tech Garden Asia Limited v Yuneec International Company Limited, supra,at [93].  In answer, I repeat paragraphs 104 to 111 above.  It is not the policy of the law to force parties whose relationship with each other has broken down irretrievably or who no longer enjoy mutual trust confidence and goodwill to work together. 121.  Turning back to the plaintiff’s ability to pay damages, it is a HK$1 dollar company acquired specially to sign the Agreement.  It has not adduced any evidence as to its financial ability to honour a cross-undertaking as to damages, even though it is incumbent upon it to adduce such evidence: Brigid Foley Ltd v Elliot [1982] RPC 433 at 435-436 (Sir Robert Megarry VC).  The plaintiff’s silence has continued even after the defendant has specifically pointed out that there is no evidence as to this aspect.  Mr Wong SC points to the plaintiff’s purchase of over US$12 million worth of watches from the defendant as indicative of a healthy financial situation.  The plaintiff has issued share capital of HK$1.  We do not know from where it derived its working capital or the basis upon which it obtained the necessary finance for any inference to be drawn one way or the other.  122.  As Ribeiro J (sitting in the Court of Appeal) observed in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118 at 128, for the protection given to the defendant by the cross-undertaking to be real and not illusory, the plaintiff must be able to honour it if required.  The financial position of the plaintiff is therefore a material fact which should be disclosed.  123.  In the absence of any evidence from the plaintiff, I proceed on the basis that the plaintiff may not be good for the money.  The plaintiff’s cross-undertaking as to damages may therefore be valueless and illusory, which is a factor weighing against the continuation of the Interim Injunction Order: Lau King Ting Katie v Cheng Miu Har Stella [2008] 4 HKLRD 563 at [25]-[27] (Deputy High Court Judge Harris SC, as he then was); Maldives Airports Co Ltd at [79]-[80]; Goldrein, Commercial Litigation: Pre-emptive Remedies (2nd Ed., 2011), pp 33-34. 124.  The plaintiff has all along maintained that it should not be required to fortify its cross-undertaking as to damages.  This position continued until the end of Mr Wong SC’s submission in court in the afternoon on 16 January 2018.  Leading counsel for the plaintiff closed his submission by indicating for the first time that the plaintiff could pay into court HK$8 million to secure its cross-undertaking as to damages in 7 to 10 days’ time. 125.  It is regrettable that this offer was not made earlier to enable the court and the defendant to properly assess its adequacy.  As it was, it was thrusted upon Mr Yu SC literally before he stood up to begin his submission.  On the evidence available, I am inclined to doubt if HK$8 million would give the defendant sufficient coverage until the trial of this action should the Interim Injunction Order be continued.  The defendant’s profit from direct sales in Hong Kong and the PRC in 2016 before the execution of the Agreement amounted to CHF1,291,506.  As I have already said above, there is no reason why the defendant should limit its estimated loss of profit to what it achieved in 2016.  In this connection, I observe that the 2016 profit margin was a leap from those of 2014 (CHF771,221) and 2015 (CHF858,323).  It seems that the Hong Kong market alone has developed positively over the past year.  The defendant has mentioned an intention to pursue business opportunities in the 3 markets within the Territory in a different manner including the use of local distributor(s). BALANCE OF CONVENIENCE 126.  In light of the doubt as to the adequacy of damages to the defendant, I move on to consider the balance of convenience. 127.  Given my above analysis and conclusion on “serious issue to be tried”, the balance of convenience is in my view tipped in favour of the defendant, i.e. for the discharge of the Interim Injunction Order. CHENG’S 2ND AFFIRMATION 128.  Cheng’s 2nd affirmation goes to the question whether the defendant has acted in breach of the Interim Injunction Order after it was made on 24 November 2017.  Such evidence would bolster the need for the continuation of the Interim Injunction Order if a case for continuation has otherwise been made out.  It cannot by itself have any significant impact on the question whether the Interim Injunction Order should be continued. 129.  In other words, Cheng’s 2nd affirmation is or has become irrelevant. DISPOSITION 130.  For the reasons stated above, I order (1)  that the plaintiff’s application for leave to adduce Cheng’s 2nd affirmation be dismissed; (2)  that the Interim Injunction Order be discharged; (3)  that the Summons be dismissed; and (4)  on a nisi basis, that the plaintiff should pay the defendant’s costs of and occasioned by the Summons, including the reserved costs of the hearing on 24 November 2017, on a party and party basis, with certificate for counsel for the hearing on 24 November 2017 and certificate for two counsel for the hearing on 16 January 2018, to be taxed if not agreed. 131.  I have given further thoughts to the matter of quantification of damages.  With a view to facilitating the assessment of damages should it become necessary and picking up on the suggestion made by counsel for the defendant in paragraph 57 of their written submission, I am also minded to order the defendant to give account of its profits from now until trial.  I wish to hear parties on the terms of the account and direct the plaintiff and the defendant to file and serve written submissions on this within 14 days and 28 days respectively. 132.  Last but not least, it remains for me to thank counsel for their able assistance.         (Lisa Wong)   Judge of the Court of First Instance   High Court    Mr Horace Wong SC, Mr Norman Nip and Mr Thomas Wong, instructed by Reed Smith Richards Butler, for the plaintiff Mr Benjamin Yu SC and Mr Anthony Chan, instructed by Deacons, for the defendant [i] The plaintiff has not produced a copy of this agreement. [ii] While the defendant says the event was for promotion of the Brand outside of the Territory, the plaintiff contends that the fact that the defendant actively invited Hong Kong media to attend the event clearly indicates its intention to promote and market the Products in Hong Kong without going through the plaintiff.  [iii] For the sake of completeness, the defendant also relies on what it perceives to be the plaintiff’s persistent refusal to acknowledge its right to make (and the plaintiff’s obligations to comply with) reasonable requests for marketing plans and receipts for marketing expenses as constituting a repudiation of the plaintiff’s obligations under clause 2.1(k). [iv] See paragraph 27 of Ho’s 2nd affirmation. [v] I have not included clause 2.1(h) as I have no evidence of the plaintiff’s net profit, without which one cannot say whether the claimed marketing expenses minus the unchallenged marketing expenses amounted to 10% of the net profit.  Apart from the express terms of the Agreement, the defendant also contends for an implied term that the parties to the Agreement must perform their obligations and behave honestly, the breach of which would entitle the innocent party to terminate by applying the old legal maxim that “fraud unravels all”: HIH Casualty v. Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61 at [15]-[16] (Lord Bingham) & [68] (Lord Hoffmann); Yam Seng Pte Ltd v. International Trade Corp Ltd [2013] 1 Lloyd’s Rep 526 at [135]-[137] (Leggatt J).  Another implied term said to exist and to have been breached by the plaintiff is one that the parties should act in good faith towards one another, because the distributorship relationship required the plaintiff and the defendant to communicate and cooperate effectively, particularly in respect of marketing and the production and supply of the Products.  See Yam Seng Pte at [138]-[156]. [vi] I have not set out clauses 7.2(b) to 7.4 because they are not material or relied upon at the hearing on 16 January 2018.